Service provider is not liable for Service Tax on incentives received for the promotion or marketing of mutual funds

[CA Bimal Jain]

The CESTAT, Ahmedabad in the case of NJ INDIA INVEST PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE-SURAT-I- 2024 (6) TMI 249 - CESTAT AHMEDABAD , allowed the appeal filed by setting aside the Service tax demand, thereby holding that incentives from Asset Management Companies (“AMCs”) for mutual fund distribution were exempt under reverse charge, advertisements in the ‘FUNDS WATCH’ magazine fell under print media exemption and training for sub-distributors was classified as exempt vocational training these all three are exempt from tax.

Facts:

M/s. N J India Invest Pvt. Ltd. (“the Appellant”) a company engaged in the distribution and marketing of mutual fund units, was challenged with a service tax demand from the Commissioner of Central Excise (“the Respondent”) through an order dated December 31, 2013 (“the Impugned Order”).

The Respondent’s claim included three main issues.

1. The Respondent claimed that the incentives received from the AMCs for marketing mutual funds should be taxed under Business Auxiliary Service. However, the Appellant argued that these incentives were exempt as per Rule 2(1)(d)(vi) of the Services Tax Rules, which mandates that the tax liability falls on the AMCs as service recipients.
2. The revenue from advertisements in their magazine ‘FUNDS WATCH’ was deemed taxable under Sale of Space for Advertising services, whereas the Appellant maintained it was exempt as print media under Section 65(105) (zzzm) of the Finance Act, 1994.
3. The Respondent sought service tax on training sessions provided to sub- distributors, which the Appellant argued that these sessions constituted vocational training and thus exempt under Notification No. 24/2004-ST.

Aggrieved by the Impugned Order, the Appellant filed an appeal before the Hon’ble CESTAT.

Issue:

Whether service provider is liable for service tax on incentives received for the promotion or marketing of mutual funds??

Held:

The CESTAT, Ahmedabad in NJ INDIA INVEST PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE-SURAT-I- 2024 (6) TMI 249 - CESTAT AHMEDABAD held as under:

• Noted that, under Rule 2(1)(d)(vi), for business auxiliary services related to the distribution of mutual funds, the AMCs were liable to pay service tax as the recipients of the service, not the Appellant. 
• Observed that, the magazine did not contain specific product details for the purpose of selling to customers. Instead, it included various new items and details about mutual funds from AMCs. Therefore, the magazine could not be classified as a trade catalogue. It clearly fell under the exclusion category of books provided under Section 65(105) (zzzm) of the Finance Act, 1994. As a result, it could not be taxed under the head of sale of space or time for advertisements.
• Further observed that, the Appellant provided training to sub-distributors to help them engage in the business of selling mutual funds. This training was categorized as vocational training, which is exempt under Notification No. 24/2004-Service Tax dated September 10, 2004. Consequently, the service tax demand under the head of commercial training or coaching services was also found to be unsustainable.
• Held that, the Tribunal set aside the Impugned Order, ruling in favour of the Appellant. Accordingly, the appeal was allowed and the Service Tax demands confirmed in the adjudication order were deemed unsustainable.

Our Comments:

Service recipient is liable under the Reverse Charge Mechanism even if service provider does not charge Service Tax in invoice if Service Tax is otherwise applicable.  Other persons are liable to pay service tax under forward charge.  The onus is on the part of the department to prove that the person alleged for nonpayment of service tax under reverse charge mechanism is the actual service recipient.

In GREENPLY INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR-I - 2015 (12) TMI 80 - CESTAT NEW DELHI  - the appellants are exporters.  They receive the export proceeds through ING VYSYA Bank.  The foreign bank through which the payment has given channelized charged some amount from the appellant’s bank ING VYSYA Bank which in turn recovered the same from the appellant.  The Tribunal held that no documents have been produced showing that foreign bank has charged any amount from the appellant directly.  The impugned order clearly indicates that it is the ING VYSYA Bank paid the charges to the foreign bank.  The appellant cannot be treated as service recipient and no service tax can be charged from them under Section 66A of the Finance Act, 1994.

Further, in M/S ASIAN SCHOOL OF MEDIA STUDIES VERSUS COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX - 2021 (11) TMI 514 - CESTAT ALLAHABAD Hon’ble CESTAT, Allahabad held that the service of providing professional/ vocational training courses and providing certificates to the students, on the basis of which the students are getting jobs or are trained to work as an entrepreneur / self-employed, falls under the exclusion clause of Section 65(27) of the Finance Act, 1994.

Similarly CESTAT, Chennai in TRICHY INSTITUTE OF MANAGEMENT STUDIES (P) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, TRICHY  - 2011 (9) TMI 387 - CESTAT, CHENNAI held that the levy of Service tax in respect of the training and coaching provided by the appellants which form an essential part of a course or curriculum of a university, leading to issuance of certificate or diploma or degree to the students recognized by law is not justified, even though the same is obtained by the students of the institution run by the appellants through distance education programme.

In our view, relying on the decision of various precedents, it can be construed that levy of Service tax in respect of the training and coaching, which form an essential part of a course or curriculum of a university, leading to issuance of certificate or diploma or degree to the students recognized by law is not justified.

Relevant provisions:

Rule 2(1)(d)(vi) of Service Tax Rules is reproduced below :-

"2(1) in these rules, unless the context otherwise requires (d) Person liable for paying the "Service Tax" means (vi) in relation to business auxiliary service of distribution of mutual fund by a mutual fund distributor or an agent, as the case may be, the mutual fund or asset management company, as the case may be receiving such service".

Clause (zzzm) Section 65 (105) of the Finance Act, 1994 which reads as under:-

“65. Definition.-

In this Chapter, unless the context otherwise requires,

(105) "taxable service" means any service provided,-

(zzzm) to any person, by any other person, in relation to sale of space or time for advertisement, in any manner; but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organisation.

Explanation 1.- the purposes of this sub-clause, "sale of space or time for advertisement" includes,-

(i) providing space or time, as the case may be, for display, advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet;

(ii) selling of time slots on radio or television by a person, other than a broadcasting agency or organisation; and

(iii) aerial advertising.

Explanation 2.- the purposes of this sub-clause, "print media" means "book" and "newspaper" as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867;”

Relevant extract of Notification No. 24/2004 – Service Tax dated September 10, 2004 as amended by Notification No. 19/2005- Service Tax dated June 07, 2005 is reproduced below :-

“In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided in relation to commercial training or coaching by, -

(a) a vocational training institute; or

(b) a recreational training institute,

to any person, from the whole of the service tax leviable thereon under section 66 of the said Act.

Provided that nothing contained in this notification shall apply to the taxable services provided in relation to commercial training or coaching by a computer training institute.

Explanation.- For the purposes of this notification,-

(i) "vocational training institute" means an Industrial Training Institute or an Industrial Training Centre affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961(52 of 1961)”

 (Author can be reached at [email protected])