Payment of service tax through cenvat

[Sanjeev Sharma]

A company engaged in the business of wealth management and distribute various financial products to their customers. One of the product is distribution of Mutual Funds wherein they get commission from Asset Management Companies (AMC) which is covered under Business Auxiliary Service and service tax is to be paid by the Service receiver in this case. AMCs while making payment make a deduction of the relevant service tax from commission and pay net amount. Company has various other business segment which are all covered under service tax (viz IPO marketing , Home Loans Distribution etc.). Please clarify the following: 1. Whether company has to include the revenue from Mutual Fund distribution in service tax return? 2. If yes , how to show the service tax paid by the service receiver in service tax return? 3. Company is not liable to Pay service tax on commission earned on Mutual Fund distribution therefore do they need to make any adjustment in the CENVAT credit accumulated during the period in % to the revenue from Mutual Fund as compared to the total revenue. 4. Presently company has huge CENVAT credit is lying in books which remains unutilized at the end of every quarter. Is it somehow possible to take the advantage of this against service tax liability from Mutual Fund Commission Revenue.

[Dinesh Gupta]

In case of mutual fund, the liability to pay service tax is upon the service recipient. In the hands of the service provider, it is neither a taxable service nor an exempted service. Therefore, a service provider is not required to show or include the turnover arising out of MF in the service tax return. Moreover, since the service is not taxable in the hands of distributor of MF, he can not avail cenvat credit on the input services used in relation to distribution of MF.

AI Summary

Liability on service recipient means distributors need not declare mutual fund commission or claim cenvat credit. The liability to pay service tax for mutual fund distribution lies with the service recipient (the AMC); the distributor need not include mutual fund commission turnover in its service tax return and need not report service tax collected by the recipient. The distributor's mutual fund distribution is not taxable in its hands, and therefore the distributor cannot avail cenvat credit on inputs or input services used for that distribution, so accumulated unutilised cenvat credit cannot be claimed against such commission income.