Fund sales on service tax radar

FC 25/5/09

Is selling mutual fund products a taxable service?

The Supreme Court will decide the matter in an appeal filed by Commi-ssioner of Service Tax, which feels sale of mutual funds (MFs) amounted to service for the purpose of levy of service tax.

A bench headed by Justice S H Kapadia has sought reply from PN Vijay Financial Services, which sells MF products for a commission, as to why it should be allowed to claim exemption on such services.

The department had challenged the customs, excise and service tax appellate tribunal judgment that dismissed its appeal while holding that the consultancy firm was not liable to pay any service tax.

The government alleged that exempting commissions on sale of goods under the heading BAS was not applicable to ‘management consultants’ dealing in sale and Purchase of MFs.

It said PN Vijay Financial Services, registered under the category management consultancy service with the tax authorities, had filed an application for refund of service tax under Section 11B of the Central Excise Act 1944, as made applicable to service tax by virtue of Section 83 of the Finance Act 1994.

The firm had filed refund claim for more than Rs 6.16 lakh on the grounds that it had wrongly paid service tax on the commissions earned from sale and purchase of MFs from April 2003 to March 2004 as such services were covered under BAS as per the 1994 Act, the petition added.

It said the firm had stated that BAS was brought under the service tax net as per the notification dated June 20, 2003 and it was not liable to pay any service tax in view of exemption under the notification.

However, the Assistant Commissioner Service Tax had rejected the refund claim in November 2005 on the grounds that the Notification was applicable to sale and purchase of goods and since the units of MFs were not goods, the firm was not entitled to exemption benefits, according to the department. The commissioner, on appeal by the financial services firm, had set aside the assistant commissioner’s order after following a judgement of the Delhi High Court wherein the CBEC’s circular of November 5, 2003 was quashed. The circular had clarified that the services provided by the mutual fund agents were primarily in the nature of services of commission.

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