2022 (2) TMI 957 - AT - Service Tax

Valuation of services - Brokerage Charges - whether the brokerage charges paid to the brokers/distributors by the appellants are reimbursable expenses or whether is a consideration that has to be included in the taxable value of the appellant? - reverse charge mechanism - suppression of facts - extended period of limitation - HELD THAT - The brokerage charges have already suffered Service Tax on reverse charge basis. To make the same amount subject to Service Tax on forward basis under Asset Management Services would be levying Service Tax on the same amount twice. The appellants have consistently contended that the said brokerage charges were recovered from M/s. SMF and these are nothing but reimbursable expenses - as per Regulation 52 ibid., the appellants are entitled to charge such expenses incurred on brokerage on the mutual fund. Needless to say that the appellant, being an Asset Management Company, is bound by the SEBI Regulations. They have accounted the brokerage charges paid by them and reimbursed by M/s. SMF so as to make it practical for them to comply with the SEBI Regulations. The brokerage charges paid by the appellant is nothing but reimbursable expenses. The period being prior to 2015 (prior to amendment dated 14.05.2015), the demand of Service Tax on such reimbursable expenses cannot sustain as settled by the Hon ble Supreme Court in the case of M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT . Time Limitation - HELD THAT - This Show Cause Notice has been issued alleging suppression of facts and invoking the extended period. There is no evidence put forward by the Department to establish that there is any element of fraud, wilful suppression or mis-statement of facts on the part of the appellant. Since the entire transactions were under discussion between the Department and the appellant and also considering the fact that there were other litigations with regard to the credit availed on Service Tax paid on brokerage charges, it is found that there is no factual or legal basis for invoking the extended period. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Taxability of "Brokerage recoverable from Mutual Fund schemes" under Asset Management Services.
2. Classification of the appellant as a "pure agent."
3. Applicability of Service Tax on reimbursable expenses.
4. Invocation of extended period of limitation.

Issue-wise Detailed Analysis:

1. Taxability of "Brokerage recoverable from Mutual Fund schemes" under Asset Management Services:

The Department contended that the amounts shown as "Brokerage recoverable" should be included in the taxable value for Service Tax under Asset Management Services. The appellant argued that these amounts were reimbursements of expenses and not subject to Service Tax. The Tribunal noted that the appellant had already paid Service Tax on brokerage charges under the reverse charge mechanism. Imposing Service Tax again on these amounts under Asset Management Services would result in double taxation. The Tribunal concluded that brokerage charges paid by the appellant and reimbursed by M/s. SMF are reimbursable expenses and not subject to Service Tax.

2. Classification of the appellant as a "pure agent":

The appellant claimed to be a pure agent of M/s. SMF, which should exempt them from Service Tax on reimbursable expenses. The Tribunal examined the Investment Management Agreement and SEBI regulations, which allowed the appellant to charge M/s. SMF for expenses incurred, including brokerage. The Tribunal found that the appellant acted as a pure agent, as the brokerage charges were incurred on behalf of M/s. SMF and reimbursed accordingly.

3. Applicability of Service Tax on reimbursable expenses:

The Tribunal referred to the Hon'ble Supreme Court's decision in Union of India v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd., which stated that Service Tax is applicable only on the value of consideration charged for taxable services and not on reimbursable expenses. The Tribunal held that the demand for Service Tax on reimbursable expenses could not be sustained for the period prior to the amendment dated 14.05.2015.

4. Invocation of extended period of limitation:

The appellant argued that the Department was aware of their accounting practices and had previously initiated proceedings on the same issue, which were decided in favor of the appellant. The Tribunal found that there was no evidence of fraud, wilful suppression, or mis-statement of facts by the appellant. The Tribunal concluded that invoking the extended period of limitation was unjustified, as the Department had full knowledge of the appellant's transactions and accounting practices.

Conclusion:

The Tribunal set aside the impugned order, allowing the appeal with consequential reliefs. The Tribunal held that the brokerage charges paid by the appellant and reimbursed by M/s. SMF were reimbursable expenses and not subject to Service Tax. The Tribunal also found that the Department's invocation of the extended period of limitation was unjustified.