2016 (10) TMI 656 - AT - Service Tax

Scope of exemption available to commission agents - section 65(105)(zzb) - section 65(19) of Finance Act, 1994 - service of distribution of mutual fund - Held that - It would appear that the service of distribution of mutual fund was not liable to tax before 9th July 2004 when the exemption available to commission agents dealing in anything other than agriculture produce was rescinded. The attempt to take the activity of agents of mutual funds out of the purview of the exemption notification that was available till then by issue of circular had been invalidated by various judgements. In these circumstances, the taxability of brokerage of mutual funds was left to quasi-judicial determination. The appellant had paid taxes due till July 2004, along with interest, in two tranches to cover the entire receipts from Asset Management Companies but sought refund of thee amount paid as second installment. Refund of earlier installment had been remanded by the first appellate authority for disposal on merits. The authority empowered to decide on the refund application has chosen to use the investigation initiated by the Directorate General of Central Excise Intelligence to refrain from exercising its obligation under the Finance Act, 1994 read with section 11B of the Central Excise Act, 1944. This casual disposal is prone to further intervention by attempt to reclassify the nature of the service through the disposal of refund claim, in a manner that is contrary to the principles of natural justice and in direct contravention of the circular of Department of Revenue issued in 2007. A plain reading of section 11B of Central Excise Act, 1944, made applicable to Finance Act, 1994, indicates that refund claims had to be filed within one year of payment of tax. The statutory provisions allow only for two outcomes sanction or rejection and, in the event of the former, to either release the sanctioned amount to the applicant or to credit to the Fund if evidence of unjust enrichment could be presumed. Rejection would, certainly, have to be articulated in a speaking order with reasoned substantiation for that course of action. The rejection on grounds of being pre-mature reflects either ignorance or unwillingness to act with responsibility. The impropriety of the original authority can be remedied only by remand back to that official to consider the refund application on merit without awaiting the outcome of the notice issued by Directorate of Central Excise Intelligence. Lest that authority be tempted to deny the refund on ground of unjust enrichment, it is also clarified at this stage that, tax having been paid well after the rendering of service and receipt of consideration, it is not acceptable as a ground for denial. The original authority shall either sanction the refund or reject it by a speaking order within four weeks. The appeal is allowed by way of remand for strict compliance.

Summary

Issues:
1. Interpretation of the exemption for commission agents under the Finance Act, 1994.
2. Taxability of brokerage of mutual funds and applicability of circulars and notifications.
3. Refund claim rejection based on premature grounds and procedural irregularities.
4. Violation of principles of natural justice in the decision-making process.
5. Application of statutory provisions for refund claims and rejection criteria.

Analysis:

Issue 1: Interpretation of the exemption for commission agents
The case involved the interpretation of the exemption provided to commission agents under the Finance Act, 1994. The appellant, M/s Blue Chip Investment Centre Ltd, registered as a provider of business auxiliary services, sought clarity on the taxability of commission agents. The exemption was initially broad but later restricted to commission agents dealing with agriculture produce only.

Issue 2: Taxability of brokerage of mutual funds
The appellant paid taxes on brokerage of mutual funds under protest after a circular clarified the tax liability. However, the rejection of their refund claim was based on the inability to establish themselves as commission agents. The tribunal analyzed the taxability of mutual fund distribution services and the impact of circulars and notifications on tax liability.

Issue 3: Refund claim rejection and procedural irregularities
The rejection of the refund claim by the authorities was deemed premature and lacking in procedural fairness. The appellant contended that their participation in the proceedings was ignored, and the rejection was contrary to circulars specifying the taxable nature of their services. The tribunal highlighted the importance of adherence to statutory provisions for refund claims.

Issue 4: Violation of principles of natural justice
The appellant raised concerns about the violation of principles of natural justice in the decision-making process. They argued that their contentions were not adequately considered in the impugned order. The tribunal emphasized the need for fair and transparent proceedings in tax matters.

Issue 5: Application of statutory provisions for refund claims
The tribunal examined the statutory provisions related to refund claims and emphasized the necessity of providing reasoned substantiation for rejection. The rejection on grounds of being premature was criticized for reflecting ignorance or unwillingness to act responsibly. The tribunal directed the authorities to consider the refund application on merit without delay.

In conclusion, the tribunal allowed the appeal by way of remand for strict compliance with the terms outlined, emphasizing the importance of fair procedures, adherence to statutory provisions, and timely consideration of refund claims.