CESTAT, KOLKATA BENCH
Commissioner of Central Excise, Jamshedpur
ORDER NO. S-145 (KOL.) OF 2012
SP NO. 869 OF 2010
APPEAL NO. ST/366 OF 2010
FEBRUARY 27, 2012
S.K. Gaule, Technical Member – Heard both sides.
2. The applicant filed this application for waiver of predeposit of service tax of Rs. 68,03,086/-, educational cess and equal amount of penalty under Section 76, penalty of Rs. 5,000/- under Section 77 and penalty of Rs. 70 lakhs (Rupees seventy lakhs only) under Section 78 of the Finance Act, 1994.
3. The applicant is holding a Service Tax Registration under the category of GTA as service recipient. On verification by the Audit of their Annual Report for the period from 2003-04 to 2005-06, it was found that they were receiving commission and discount. The department made a case against the applicant for not paying the service tax on business auxiliary services. In respect of the said commission and discount received, the applicant’s plea was that they were registered as sub-broker of mutual fund distributors and that the said income was on account of distribution of mutual fund on which service tax liability had been discharged by the authorized body. However, they could not produce any evidence in support of their plea. Accordingly, the Department confirmed the demand of service tax and imposed penalties as narrated in Para 2 (supra). The applicant challenged the above order.
4. The contention of the applicant is that the service tax provided by the applicant is not taxable under Clause (ii) & (iv) of the definition of Business Auxiliary Service (BAS). The contention is that the service provided by them is covered vide Notification NO.13/2003-ST dated 20.6.2003 up to 9.7.2004, hence, no service tax is payable by the appellant upto 9.7.2004. The contention is that the mutual fund is nothing, but goods in view of Section 2(7) of Sale of Goods Act, therefore, their activity is not covered under Clause (ii) & (iv) of the definition of BAS up to 10.9.2004. In support of their contention, they have placed reliance of the Tribunal’s decision in the case of CST v. P.N. Vijay Financial Services (P.) Ltd.  17 STT 107 (New Delhi – CESTAT) wherein it was held as under :
“8. In any view, we have given doubts if the activity involved in the sale and purchase of units of mutual fund schemes would fall under clauses (ii) & (iv) of Section 65(19). The said clauses refer to ‘services’. The mutual fund units being ‘goods’ as per the definition under Section 65(50) of the Finance Act, 1994 read with Section 2(7) of the Sale of Goods Act, 1930, would fall under clause (i) of Section 65(19), namely, promotion or marketing or sale of goods. But as the ‘Business Auxiliary Service’ provided by a commission agent by way of sale and purchase of “goods” stands exempted under Notification No. 13/2003-S.T., the conclusion is irresistible that the respondent were not liable to pay any service tax for service rendered as commission agent in connection with sale and purchase of units of mutual fund schemes during the relevant period.”
The contention is that accordingly they are eligible for exemption Notification No.13/2003-ST dated 20.6.2003 upto 9.7.2004.
5. The contention of the Department is that during the period 2003-04, 2004-05 & 2005-06, the applicants have received commission and discount which is clearly evident from their balance sheet/annual report. As regards the contention of the applicants that they received the said commission on account of their having rendered services to Mutual Fund Distributors and Asset Management Companies and so far as their contention that they were procuring the sale of Mutual Fund Schemes and filled forms and received subscription on behalf of their clients, the applicants could not produce any evidence in support of having received such payment from Mutual Fund Companies/their distributors or any Asset Management Company. Similarly, with regard to their contention that they were procuring various order from various investors on behalf of their clients/MF distributors and agents, also they could not produce the bills/invoices raised to their client for providing such service and they could not even name the clients on whose behalf they were rendering such service. The contention is that the applicants have provided certain services to their clients for which they have also received payments as commission. Such service is regarding procurement of orders for sale of mutual funds on behalf of their clients, which fact has also been admitted by them. The contention is that the applicants are not providing any service to Mutual Fund Companies. The applicant is neither a distributor nor an agent of Mutual Fund Company. The contention is that the applicants have produced a copy of Certificate of Registration issued by the Association of Mutual Funds in India (AMFI) dated 1.10.03, which has been issued in the name of Sachdev Steel Works Private Ltd., but address is given on the Certificate. The contention is that the applicant would not produce any evidence that they have received the commission directly from the Mutual Fund Companies being a registered mutual fund distributors. Therefore the case law cited is distinguishable and not applicable to their case. We find that the applicant is not a mutual find distributor, nor an agent of Mutual Fund Company. The contention is that the applicants also could not produce any evidence that the service tax has been paid by mutual fund companies on the element of commission received by them.
6. We find that they have procured mutual fund subscription for SKP Securities Ltd. and Eastern Financial Ltd. The applicants are not mutual fund distributors nor they are agents thereof. The applicants could not produce any evidence in this regard. Therefore, the case law in the case of P.N. Vijay Financial Services (P.) Ltd. (supra) us not applicable to their case. Accordingly, the benefits of Notification are also not available to them. The applicants also could not produce any evidence that they have received commission directly from mutual fund companies being a registered mutual fund distributors. The applicants could not act or interact with intending investors and explain to them the mutual fund schemes and on settlement of deal, they are given a duly filled up form along with the application money. However, the applicants have not produced any documentary evidence in support of their contentions. In the circumstances, the applicant is not able to make out a prima facie case for total waiver of pre-deposit. The applicants did not plead financial hardship. The Hon’ble High Court of Andhra Pradesh in the case of CCE v. Sri Chaitanya Educational Committee  31 STT 22/10 taxmann.com 79 (AP), held that besides prima facie case, balance of convenience to be focused. The ratio of the decision of the Hon’ble High Court of Andhra Pradesh is in favour of the Department in this case. In view of the above, the applicant is directed to make pre-deposit 25 per cent of the service tax within eight weeks and report compliance on 3-5-2012. In case of non-compliance, the appeal will be dismissed without any further notice.