2016 (1) TMI 23 - AT - Service Tax

Cenvat Credit - input services - receipt of advertisements services for promoting the mutual fund - Held that - adjudicating authority has admitted the fact that the amount incurred on Advertisement is not reimbursed but he held that it is still to be considered as reimbursable and cannot be considered as non-pure agent service. - it is established that role of asset management is not only related to managing the assets but also to implement overall schemes of M/s.SMF. Therefore Revenue s contention that they cannot undertake any advertisement for promoting the schemes is not justified. - as per SEBI Regulations, the prescribed limit of upto 6% is reimbursable from the fund owner and in the present case appellant not claimed any credit on the amount reimbursed from SMF only after exceeding the limit, the expenses on the advertisement cost was duly included in the value of output taxable service and discharged service tax on the gross value. - Credit allowed since it is an eligible input service. Availment of credit on brokerage fee - service tax was paid under reverse charge method - Held that - Revenue had issued a clarification to the appellant in their letter dt. 3.10.2012 to the appellant that they are eligible for cenvat credit on the service tax incurred and paid by the appellant on brokerage charges. We also find support from the Government advertisement issued by CBEC after the introduction of negative list wherein the Board has categorically clarified that service tax paid on the brokerage commission by Mutual Fund and Asset Management Companies is available as credit for paying service tax on their output services. This advertisement was issued consequent on withdrawal of service tax exemption on brokerage commission w.e.f. 1.4.2015. Therefore, it is evident that when there was no exemption for service tax, the Board had categorically clarified that assessees have to pay service tax under reverse charge and they are eligible for availing credit. - Credit allowed. Duty paying documents - validity - Held that - respondent is entitled to avail credit of service tax on the basis of credit of service tax on the basis of TR-6 challan. Appellants are eligible for taking credit on the service tax paid by them on brokerage commission and the demand confirmed by the adjudicating authority is liable to be set aside. Since the appellants succeeds on merits, we do not go into the limitation issue. - Decided in favor of assessee.

Summary

Issues Involved:
1. Denial of CENVAT credit on advertisement services.
2. Denial of CENVAT credit on brokerage charges paid under reverse charge mechanism.

Detailed Analysis:

1. Denial of CENVAT Credit on Advertisement Services:

The appellant, registered with Service Tax (LTU) and providing services under "Banking and Other Financial Services," was denied CENVAT credit on advertisement services by the adjudicating authority. The authority issued a Show Cause Notice (SCN) on 6.5.2010 and confirmed the demand of Rs. 1,30,17,458/- along with interest and an equal penalty under Section 78 of the Finance Act, 1944, on the grounds that the appellant acted as a pure agent and availed double benefit.

The appellant argued that the advertisement charges were not reimbursed from their principal as a pure agent and were over and above the 6% limit imposed by SEBI. They provided a Chartered Accountant's certificate confirming that the advertisement expenses were included in their Profit and Loss Account and not recovered from Sundaram Mutual Fund. The appellant also relied on various clauses of the Investment Management Agreement and SEBI regulations, arguing that the advertisement expenses were necessary for promoting the schemes and thus, should be considered as input services.

The adjudicating authority, however, held that the expenses were still to be considered as reimbursable and denied the credit. The appellant contended that there was no suppression of facts and that the situation was revenue-neutral.

The Tribunal found that the appellant's role included managing and implementing schemes, which involved incurring advertisement expenses. The SEBI regulations allowed advertisements by the mutual fund, its sponsor, or the Asset Management Company, and there was no bar on the Asset Management Company incurring advertisement expenses. The Tribunal relied on the Bombay High Court's decision in the case of Coca Cola India Pvt. Ltd. and the Madras High Court's decision in the case of Sundaram Brake Linings Ltd., which supported the appellant's claim for credit on advertisement services.

2. Denial of CENVAT Credit on Brokerage Charges:

In the second appeal, the issue was the denial of CENVAT credit on brokerage charges paid to brokers/distributors under the reverse charge mechanism. The adjudicating authority issued an SCN on 15.3.2013 and confirmed the demand of Rs. 5,03,81,074/- along with interest and an equal penalty under Section 78, on the grounds that the brokerage charges were not an eligible input service and the documents on which credit was availed were not valid.

The appellant argued that they paid service tax on the brokerage charges under reverse charge mechanism and rightly availed credit. They referred to the Investment Management Agreement, which included appointing brokers/distributors as part of the Asset Management Company's role. The appellant also relied on a CBEC advertisement clarifying that service tax paid on brokerage charges was available as credit.

The Tribunal found that the service tax on brokerage charges was paid by the appellant and included in the value of output taxable service. The adjudicating authority's contention that the documents were not valid was rejected based on the Madras High Court's decision in the case of M.R.F., which held that TR-6 challans were valid documents for availing credit.

Conclusion:

The Tribunal held that the appellants were eligible for CENVAT credit on advertisement services and brokerage charges. Both impugned orders were set aside, and the appeals were allowed with consequential relief. The Tribunal's decision was based on the established role of the Asset Management Company, relevant SEBI regulations, and supportive judicial precedents.