Court invalidates Circular on Mutual Fund Service Tax, cites Central Excise Act.

The High Court ruled the Circular No. 66/15/2003-S.T. regarding service tax on Mutual Fund Distribution as illegal and contrary to Section 37B(a) of the Central Excise Act, 1944. The court quashed the circular, allowing the writ petition without awarding costs. The decision did not address the validity of the exemption notification, leaving its applicability to the relevant authorities.

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Issues involved: Interpretation of Circular No. 66/15/2003-S.T. regarding service tax on Mutual Fund Distribution and legality of the circular u/s Section 37B of the Central Excise Act, 1944.

Interpretation of Circular No. 66/15/2003-S.T.: The petitioners challenged Circular No. 66/15/2003-S.T. which clarified the applicability of service tax on Mutual Fund Distribution. The circular stated that commission received by distributors falls under Business Auxiliary Services and is liable to service tax. It also mentioned that the services provided are not exempt from service tax under Notification No. 13/2003. The petitioners argued that quasi-judicial powers should not be governed by such circulars.

Legal Interpretation of Circular: The High Court analyzed the circular and noted that it raised two specific questions regarding service tax on mutual fund distribution and the applicability of the exemption notification. The court observed that the circular's interpretation of the exemption notification was questionable. Additionally, the circular was deemed contrary to the proviso to Section 37B of the Central Excise Act, 1944, which restricts interference with the discretion of authorities in making assessments.

Decision and Ruling: The High Court found the circular to be illegal and contrary to Section 37B(a) of the Act. Consequently, the court quashed the circular and allowed the writ petition. It was clarified that the ruling did not express an opinion on the notification's validity, leaving the determination of its applicability to the appropriate authorities. No costs were awarded in this matter. The Rule Nisi was made absolute as per the judgment delivered by the Hon'ble Chief Justice on the specified date.

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