Case Law Details
NJ India Invest Pvt. Ltd. Vs Commissioner of Central Excise-Surat-I (CESTAT Ahmedabad)
Service provider is not liable for Service Tax on incentives received for the promotion or marketing of mutual funds
The CESTAT, Ahmedabad in the case of NJ India Invest Pvt. Ltd. v. Commissioner of Central Excise-Surat-I [Service Tax Appeal No. 11758 of 2014 dated June 05, 2024], 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 Service Tax Appeal. 11758 of 2014 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, 1995. 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 Limited v. Commissioner of Central Excise, Jaipur- I [2015 (38) S.T.R. 605 (Tri. – Del.)] 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 v. Commissioner of Central Goods and Service Tax [Final Order Nos. 70251-70252 / 2021 dated November 11, 2021] 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 v. CCE [Final Order No. 286-287/2011 dated September 07, 2011] 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, 1995 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)”
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The brief facts of the case are that the appellant primarily involved in the activity of marketing and distribution of mutual fund units the appellant received the Commission in relation to sale of the mutual fund of various asset management Company. In addition to the normal Commission they also get incentive for promotion and marketing of mutual fund. The case of the Department is that other than the normal Commission in relation to distribution of mutual fund on behalf of the asset management company, the incentive received by the appellant is liable to Service Tax under business auxiliary service. The second issue is that the Appellant also publish in house monthly /quarterly letter/ magazine title ‘FUNDS WATCH’ for private circulation among their clients sub- distributors network informing investors about available financial products and mutual funds scheme in operation. For this magazine appellant received advertisement from the mutual fund, in this case the department’s case is that since, the appellant has given advertisement service by selling of space in their magazine they are liable to pay Service Tax under the category of sale of space or time for advertising sales. The appellant apart from the above activity also under taking training session for the distributors when they are enrolled. The department has demanded Service Tax on activity under commercial or coaching service.
2. Ms. Puloma Dalal, Learned Chartered Accountant appearing on behalf of the appellant submits that as regards the demand on incentive /marketing support received from AMC it is nothing but in relation to distribution of mutual fund of various Asset Management Company (AMC). Therefore, in this case it is the AMC who are required to pay Service Tax under reverse charge mechanism in terms of Section 68 of the Finance Act, 1994 read with the Rule 2(1) (d) (v) of Service Tax Rules. Therefore, the appellant is not liable to pay Service Tax on the incentive received from AMCs, she also submits that after effort made by the Appellant some of the letters were received from AMCs where by it was certified that AMC’s are paying Service Tax. Therefore, there cannot be double taxation one is at the recipient and other is from service provider. As regards the Service Tax demand under sale of space for advertising Service, she submits that the advertisement is published in the in house magazine which is exempted as print media therefore, the Service Tax is not payable on these activity. Regarding demand under commercial training or coaching services, she submits that the Appellant have provided training with their own network of sub distributors who being enrolled underwent training by way of introductory course which would help them to be self-employed as sub-distributors and therefore the training is in the nature of vocational training which is exempted under Notification No. 24/2004 – Service Tax dated 10/09/2004.
Accordingly, demand under this head is not sustainable. She further submits that the impugned order has confirmed the demand for extended period. However, in the present case all the three issues are legal issue and based on interpretation of various legal provisions, all the transactions have been recorded in the books, the appellant had bona fide belief that they are not required to pay Service Tax therefore in such case there is no suppression of fact or misstatement, etc. with intent to evade Service Tax on the part of the appellant. Therefore, demand for the extended period is not sustainable on the ground of time bar also. She also submits that the penalties are not imposable in the facts of the present case invoking Section 80 of the Finance Act, 1994. In Support of her above submissions she placed Reliance on the following Judgments:-
- Raj rattan Casting Pvt. ltd vs. commr. of Cus. & C. Ex., Kanpur 2012 (25) STR 481 (Tri.-Del.)
- Shrestha Leasing & Finance Ltd. Vs. Commr. of C. Ex. & S.T. Surat-I2023 (68) GSTL 143 (Tri.- Ahmd.)
- In Re: Shanthala Finance Pvt. Ltd. 2016 (41) S.T.R. 360 (Commr. Appl.)
- Aker Solutions India Sdn. Bhd. Vs. Pr. Commissioner, Kakinada Commr, Visakhapatnam 2022 (64) G.S.T.L. 240 (Tri. – Hyd.)
- Reliance Securities Ltd. Vs. Commr. of Service Tax, MumbaiII2019 (20) G.S.T.L. 265 (Tri. – Mumbai)
- Of Cgst & Central Excise Vs Rama Sales And Services 2018 (12) G.S.T.L. 286 (All.)
- Commr Of Central Excise, Nagpur Vs Media World Enterprises 2015-TIOL-375-CESTAT-MUM
- Fertiplant Engg. Co. Pvt. Ltd. Vs. Commr. of Central Excise, Raigad 2017 (3) G.S.T.L. 312 (Tri. Mumbai)
- Ashu Export Promoters (P) Ltd. Vs. Commr. Of Service Tax, New Delhi 2012 (25) S.T.R. 359 (Tri. – Del.)
- WLC College India Ltd. Vs. Commr. Of Service Tax, Delhi 2012 (27) S.T.R. 377 (Tri. – Del.)
- Vasanth Color Laboratories Ltd Vs. Commissioner Of Service Tax 2022-TIOL-437-CESTAT-BANG
- Kirloskar Oil Engines Ltd. Vs. Commissioner Of Central Excise, Nasik 2004 (178) E.L.T. 998 (Tri. – Mumbai)
- Rolex Logistics Pvt. Ltd. Vs. Commissioner Of Service Tax, Bangalore 2009 (13) S.T.R. 147 (Tri. – Bang.)
- Cabcon India Pvt Ltd Vs. Commr. Of Central Excise, Kolkata-III 2022-TIOL-573-CESTAT-KOL
- Commissioner Vs. Polycab Wires Pvt. Ltd. 2010 (260) E.L.T. 49 (Guj.)
- Commissioner Vs. Polycab Wires Pvt. Ltd. 2011 (269) E.L.T A58 (S.C)
- CCE vs. Shree Soap & Chemical Ind. 2008 TIOL 950 CESTAT-Ahm- Section 80 invoked-penalty deleted CCE vs. Louis Berger International 2008 TIOL 1758 CESTAT-Del
- Sharvin vs. CCE, Bhopal 2008 TIOL 1167 CESTAT-Del
3. Shri Tara Prakash, learned Deputy Commissioner (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.
4. We have carefully considered the submission made by both sides and perused the records. We find that as regard to demand on incentive received from various asset management companies against promotion and marketing of mutual fund we find that the submission of the appellant is that since it is related to distribution of mutual fund it is not taxable in hand of the appellant. Being provider of service in this case Service Tax is payable by the recipient of service under reverse charge mechanism, the appellant have referred Rule 2(1)(d)(vi) of Service Tax Rules which 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”.
From the plain reading of the above Rule 2(1)(d) (vi), it can be seen that on business auxiliary service in relation to distribution of mutual fund by mutual fund distributors or agent as the case may be it is the mutual fund or asset management company who are liable to pay Service Tax as recipient of service. In the present case demand was admittedly made under business auxiliary service.
4.1 The case of the Department is that the only normal Commission received for distribution of mutual fund is taxable in the hand of the service recipient but in the present case it is additional incentive which is on account of promotion and marketing of the mutual fund, in that case the Service Tax is payable by the appellant being provider of service. We find that as per the 2(1)(d) (vi) there is no distinction given to the normal Commission or fix Commission towards the distribution of the mutual fund and the incentive received for promotion or marketing of the mutual fund. So long any business auxiliary service is provided which is in relation to distribution of mutual fund in such case the service provider is not liable to pay Service Tax.
4.2 The activity of promotion and marketing of mutual fund is also in relation to distribution of mutual fund therefore, there is no difference between the incentive received towards promotion and marketing of mutual fund and/or Commission received towards the distribution of mutual fund. Therefore, we are of the view that even the incentive received for promotion in marketing of mutual fund from various AMCs also covered under Rule 2(1)(d) (vi). Accordingly the service recipient is the person who is liable to pay the Service Tax. Therefore, as per statutory provision under Section 68(2) to of the act read with the Rule 2(1)(d) (vi) of Service Tax Rules, 1994. The appellant is not liable to pay Service Tax under business auxiliary service.
4.3 The second issue to be decided by us is whether the appellant is liable to pay Service Tax of sale of space or time under advertising service in respect of the advertisement published in their magazine namely ‘FUNDS WATCH’. The appellant have also submitted a copy of such magazine, on going through the same we find that ‘FUNDS WATCH’ magazine is for private circulation where in details of various mutual fund is provided for general public in such magazine the advertisement is published.
4.4 The appellant have submitted that under the said head in the fact of the present case Service Tax is not payable in terms of clause (zzzm) Section 65 (105) of the Finance Act, 1995 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;
On the close reading of the above sub clause (zzzm) we find that the sale of space for advertisement in print media is excluded for the purpose of levy of Service Tax and as per the definition of print media given in above explanation-2 the book is exempted other than the business directories, yellow pages and trade catalogue which are primarily for commercial purpose.
4.5 The case of the department is that the book published by the appellant where in the sale of space was made trade catalogue as per the encyclopedia the meaning of trade catalogue is given as under :-
“A catalogue designed to present a line of products and to provide information to facilitate the ordering process.” ‘Catalogue’ (source: Advanced Law Lexicon volume 1).
“A list of books etc. “, a complete numeration of items arranged systematically in a pamphlet”.
4.6 The trade catalogue designs to present a line of products not to provide information facility, the ordering process. From the above definition of trade colleague, it is clear that any company who wants to give the details of their products such as different quality of products specification thereof to facilitate their prospective Customer for ordering the product for sale is the book which is called trade catalogue. The facts of the present case from the magazine ‘FUNDS WATCH’ it is clear that these magazine does not contain a particular company’s product details for the purpose of sale of the same to their customer. The magazine contains various news matters and also details of mutual funds of various AMC’S. Therefore, in our considered view these magazine cannot be categorized as trade catalogue. Accordingly, clearly falls under the exclusion category of book provided under the sub clause (zzzm) of Section 65 (105) of Finance Act, 1995. Therefore, the same cannot be taxed under the head of sale of space for time for advertisement as the demand on this count is also not sustainable.
4.7 As regard the third issue that the Revenue has demanded Service Tax under commercial training or coaching service, we find that the appellant are providing training programmer to the sub distributors in order to facilitate Sub distributors to involve in the business/profession /job of selling the mutual fund. Therefore, training is clearly to enable the trainees that to carry out their profession /job by taking such training. Therefore, such training clearly falls under vocational training and the vocational training is exempted under Notification No. 24/2004-ST. Accordingly, the Service Tax under the head of commercial training or coaching service is also not sustainable. Our view is supported by the following Judgments:-
- Ashu Export Promoters (P) Ltd. Vs. Commr. Of Service Tax, New Delhi 2012 (25) S.T.R. 359 (Tri. – Del.)
- WLC College India Ltd. Vs. Commr. Of Service Tax, Delhi 2012 (27) S.T.R. 377 (Tri. – Del.)
4.8 Since, all the 3 issues have been decided by us on merit we are not addressing any other issues raised by the appellant and the same are left open. As per our above discussion and finding the demand confirmed in the adjudication order is not sustained.
5. Accordingly, the impugned order is set aside. Appeal is allowed.
(Pronounced in the open court on 05.06.2024)
(Author can be reached at [email protected])
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