Mutual Fund Agents - Service Tax

[CA. Puneet Gupta]

The Finance Bill, 2016 proposes to make services provided by mutual fund agents/distributor to a mutual fund or asset management company liable to service tax under forward charge, i.e. the service provider is being made liable to pay service tax ( mutual fund agents / distributors).

I have 2 queries relating to same : -

1. Whether a Mutual Fund Agent / Distributor can avail threshold exemption of ₹ 10 lacs in the year 2016-17 under Notification No. 33/2012- ST provided his value of taxable services in the year 2015-16 was exceeding ₹ 10 lacs ???

2. Whether sub - mutual fund agents who provides services to main mutual agents would also be required to get registered and covered under this levy ???

[KASTURI SETHI]

Sh.Gupta Ji,

Answer to your queries is as under:-

1. No

2.Yes.

[Ganeshan Kalyani]

Sir, in previous year your liability was crossing the threshold limit and therefore the exemption benefit cannot be availed in the current year. Thanks.

[Ganeshan Kalyani]

Sir, Sri Kasturi Sir has briefly explained his views. Thanks.

[KASTURI SETHI]

Yes Sir. we should be brief and to the point. Too much details confuse the querists.

[CA. Puneet Gupta]

Thanks for your reply Sir..

But in previous year , mutual fund agents commission was covered under Reverse Charge , so whether taxable services under reverse charges would be included for calculation of Threshold Exemption.

[KASTURI SETHI]

Dear Sir,

Pl. go through para no. 2 (viii) of Notification No.33/12-ST. " Value of taxable service provided by a service provider" The value of taxable service has to be accounted for irrespective of the fact that liability was on SR. Thus situation emerges as under :-

1. Service was taxable during the preceding year 2015-16 though at the hands of SR.

2. Service was not exempted at all during the preceding year.

Your client has provided taxable service during the previous year though liability for payment of ST was shifted to SR. Therefore, if taxable value was more than ten lakhs during 2015-16, the assessee/Service Provider is not eligible for threshold exemption this year 2016-17.

[CA. Puneet Gupta]

Thanks again for such an instant reply..

But Sir..

Lets take an example :

There is a service provider providing services as service provider of ₹ 2 lacs and services as service receiver ( covered under 100% reverse charge) of ₹ 12 lacs in the same year , so it means that he should take the registration under service tax as his value of taxable services is exceeding ₹ 10 lacs in a financial year and charge service tax on services rendered as service provider of ₹ 2 lacs.

I would like you to please clarify the situation on mutual fund in light of above example.

[KASTURI SETHI]

Dear Sir,

I further express as under:-

1. Small Scale exemption of ₹ 10 lakhs is not available to Service Receiver under RCM.See para no.(ii) of Notification No.33/12-ST (Except in case Service Provider is Govt., that too with effect from 1.4.16.)

2. Notification No.30/12-ST does not contain the word, "exemption". Service was taxable and is now taxable.During the last year taxable service was provided by Service Provider though ST was paid by SR.

I am cock sure that your client is not eligible for threshold exemption limit of ₹ 10 lakhs this year.

[Hariharan Sundaram]

Sir, kindly refer to the Issue Id: - 109990 Dated: 5-3-2016 on the same set of questions, Shri Kasthuri Sethi ji has given an other view. Now, for the same query different answer is given. Kindly enlighten me which one is correct? Kindly bear with I am not finding any fault with you sir. Just I want to confirm which one is correct. Thank you sir

[KASTURI SETHI]

Sh.Hariharan Sundaram Ji,

Re-examined the whole issue. Replies to ID no.110425 dated dated 29.5.16 posted by me on 29.5.16, 30.5.16 & 31.5.16 are correct. Inconvenience caused to you is regretted. I am thankful to you for pointing out mistake. Concept must be clear to the querist and all visitors of this site/forum.Mutual fund was taxable during the year 2015-16 though liability was at the hands of Service Receiver. There is no doubt about its taxability during the last year. Really happy with your expression and initiative.

[KASTURI SETHI]

Sh.Hariharam Sundaram Ji,

Reply to query no.2 against Issue ID no.110990 dated 5.3.16 is same and correct.It is correct both sets of questions.

AI Summary

Threshold exemption for service tax inapplicable where provider supplied taxable services previously despite tax paid under reverse charge. The proposed levy subjects services by mutual fund agents to forward-charge service tax. For threshold exemption purposes the value of taxable services provided by the service provider in the prior year is to be counted irrespective of whether liability was discharged by the service recipient under the reverse charge mechanism; if that taxable value exceeded the exemption threshold the provider is ineligible for exemption in the current year. Sub-agents supplying services to main agents must register and are covered by the levy as service providers.