Service Provider Not Liable for Service Tax on Mutual Fund Promotion Incentives
By: Admin
September 16, 2024
Categories: CESTAT | Important Pronouncements
4 Min Read
The CESTAT Ahmedabad, in the case of NJ India Invest Pvt. Ltd. v. Commissioner of Central Excise-Surat-I [Service Tax Appeal No. 11758 of 2014 dated June 05, 2024], delivered a favorable ruling for the appellant. As a result, the service tax demand was dismissed. It was decided that incentives received from Asset Management Companies (AMCs) for mutual fund distribution, revenue generated from advertisements in the FUNDS WATCH magazine, and training provided to sub-distributors were all exempt from service tax.
Case Overview
NJ India Invest Pvt. Ltd. (“the Appellant”) is a company involved in marketing and distributing mutual fund units. The Commissioner of Central Excise (“the Respondent”) issued a service tax demand against the Appellant on December 31, 2013 (“the Impugned Order”).
The Respondent’s claims included three main points:
- Incentives from AMCs for mutual fund marketing, which were allegedly taxable under Business Auxiliary Service. Nonetheless, the Appellant argued that these incentives were exempt under Rule 2(1)(d)(vi) of the Service Tax Rules, which mandates that the AMCs, not the distributor, bear the tax burden.
- Revenue from advertisements in the FUNDS WATCH magazine, which was categorized as taxable under Sale of Space for Advertising services. However, the Appellant countered that the magazine was exempt as print media under Section 65(105)(zzzm) of the Finance Act, 1994.
- Training for sub-distributors, which was classified as taxable under commercial training or coaching services. The Appellant maintained that it qualified as vocational training, exempt under Notification No. 24/2004-ST.
Decision
The CESTAT Ahmedabad ruled that the service tax demand could not stand:
- As outlined in Rule 2(1)(d)(vi), for business auxiliary services related to mutual fund distribution, AMCs are liable for paying the service tax, not the distributor.
- The FUNDS WATCH magazine did not include product-specific advertisements. Rather, it provided general information on mutual funds, which makes it exempt under print media.
- Additionally, the training sessions for sub-distributors were classified as vocational training, thus exempt under Notification No. 24/2004-Service Tax.
Therefore, the Impugned Order was set aside, and the appeal was allowed.
It is important to emphasize that under the Reverse Charge Mechanism, the service recipient is responsible for paying service tax, even if the provider does not charge it. Moreover, forward charge may apply in other situations, but the department must prove that the service recipient bears responsibility for non-payment.
Relevant Cases
- In Greenply Industries Ltd. v. Commissioner of Central Excise, Jaipur-I [2015 (38) S.T.R. 605 (Tri. – Del.)], the CESTAT ruled that ING VYSYA Bank, not the appellant, was liable for charges paid to a foreign bank. Consequently, the appellant was exempt from service tax under Section 66A.
- In M/s Asian School of Media Studies v. Commissioner of Central Goods and Service Tax [Final Order Nos. 70251-70252 / 2021], the CESTAT Allahabad held that vocational training, which leads to employment or self-employment, is exempt from service tax.
- Similarly, CESTAT Chennai, in Trichy Institute of Management Studies v. CCE [Final Order No. 286-287/2011], ruled that training leading to university-recognized certificates, diplomas, or degrees is not taxable.
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