Service tax demand set aside for mutual fund distributor on reverse charge and exemption grounds

The CESTAT Ahmedabad allowed the appeal and set aside the service tax demand. The tribunal held that for business auxiliary services related to mutual fund distribution, service tax liability falls on the recipient (asset management company) under reverse charge mechanism, not the distributor. Regarding advertising services for the magazine "FUNDS WATCH," the tribunal found it qualified as print media excluded from service tax levy as it was not a trade catalogue. For commercial training services provided to sub-distributors, the tribunal determined this constituted vocational training exempt under Notification No. 24/2004-ST, making the service tax demand unsustainable on all counts.

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Issues involved:
The issues involved in this case are:
1. Liability of Service Tax on incentive received from Asset Management Companies (AMCs) for promotion and marketing of mutual funds.
2. Liability of Service Tax on sale of space for advertising in the magazine 'FUNDS WATCH'.
3. Liability of Service Tax on commercial training or coaching services provided to sub-distributors.

Issue 1: Liability of Service Tax on incentive received from AMCs:
The Appellant argued that the incentive received from AMCs is related to the distribution of mutual funds and thus falls under the reverse charge mechanism, making the AMCs liable to pay Service Tax. They cited Section 68 of the Finance Act, 1994 and Rule 2(1)(d)(v) of Service Tax Rules to support their stance. The Tribunal agreed, stating that under Rule 2(1)(d)(vi), the AMCs are responsible for paying Service Tax on business auxiliary services related to the distribution of mutual funds. Therefore, the Appellant is not liable to pay Service Tax on the incentive received.

Issue 2: Liability of Service Tax on sale of space for advertising in 'FUNDS WATCH' magazine:
The Department claimed that the sale of space in the magazine constitutes a taxable service under advertising services. However, the Tribunal found that the magazine 'FUNDS WATCH' is for private circulation and contains details of mutual funds, not specific product details for commercial purposes. As per Section 65(105) of the Finance Act, 1995, the sale of space for advertisement in print media is exempt from Service Tax. Therefore, the demand for Service Tax on this count was deemed unsustainable.

Issue 3: Liability of Service Tax on commercial training provided to sub-distributors:
The Tribunal determined that the training provided by the Appellant to sub-distributors aimed at enabling them to carry out their profession falls under vocational training, which is exempted under Notification No. 24/2004-ST. Citing relevant judgments, the Tribunal concluded that the demand for Service Tax under commercial training or coaching services was not sustainable.

In conclusion, the Tribunal set aside the impugned order and allowed the appeal based on the merits of the three issues discussed and decided upon.

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