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2016 (1) TMI 23 - CESTAT CHENNAI

2016 (1) TMI 23 - CESTAT CHENNAI - TMI - Cenvat Credit - input services - receipt of advertisements services for promoting the mutual fund - Held that:- adjudicating authority has admitted the fact that the amount incurred on Advertisement is not reimbursed but he held that it is still to be considered as reimbursable and cannot be considered as non-pure agent service. - it is established that role of asset management is not only related to managing the assets but also to implement overall schem .....

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edit allowed since it is an eligible input service.

Availment of credit on brokerage fee - service tax was paid under reverse charge method - Held that:- Revenue had issued a clarification to the appellant in their letter dt. 3.10.2012 to the appellant that they are eligible for cenvat credit on the service tax incurred and paid by the appellant on brokerage charges. We also find support from the Government advertisement issued by CBEC after the introduction of negative list wherein t .....

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nd they are eligible for availing credit. - Credit allowed.

Duty paying documents - validity - Held that:- respondent is entitled to avail credit of service tax on the basis of credit of service tax on the basis of TR-6 challan.

Appellants are eligible for taking credit on the service tax paid by them on brokerage commission and the demand confirmed by the adjudicating authority is liable to be set aside. Since the appellants succeeds on merits, we do not go into the limit .....

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ce both the appeals are taken up together for hearing and disposal. Appeal No.ST/356/2011 2. The brief facts of the case are that appellant is registered with Service Tax (LTU) and rendering services of managing the assets of various schemes of M/s.Sundaram Mutual Fund and services are rendered under the category of "Banking and Other Financial Services". They have paid service tax and also availed input credit on various inputs services. The adjudicating authority issued SCN dt. 6.5.2 .....

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n upfront brokerage charges paid to the broker/distributor under reverse charge mechanism. Adjudicating authority issued SCN dt. 15.3.2013 and in vide order dt. 11.9.2013, confirmed the demand of ₹ 5,03,81,074/- on "Upfront Brokerage" being ineligible input service credit along with interest and also imposed equal penalty under Section 78. Hence the both appeals before Tribunal. ARGUMENTS OF ADVOCATE IN APPEAL No. ST/356/2011 4. Learned Advocate Shri S. Muthuvenkatraman assisted .....

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enied credit on two allegations viz. Appellant acted as pure agent and the amount reimbursed by them is not included in the taxable value and availed double benefit by non-inclusion of amount in the taxable value as well as availment of credit. He submits that advertisement charges incurred by them was not reimbursed from their principal as pure agent and these advertisement charges is over and above the prescribed limit of 6% imposed by SEBI. He submits that department has not disputed the paym .....

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. They have duly discharged service tax on the management fees. He further submits that they have incurred expenses in excess of 6% limit imposed by SEBI. He drew our attention to Chartered Accountant's certificate dt. 1.2.2011 at page 125 where the C.A has certified that appellant company have incurred expenses against invoices of service providers and the same has been included in the Profit and Loss Account of the appellant company and not recovered as reimbursement from M/s.Sundaram Mutu .....

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of "Pure Agent", wherein it is clarified that advertisement is an input service for the Estate Agent in order to enable or facilitate him to perform his services as an estate agent. Counsel submits that same illustration is applicable to their case where in order to promote the scheme, they have advertised as an Asset Manager. Accordingly, they have paid service tax on all expenses including advertisement expenses. Therefore, they are eligible to avail credit on the advertisement servi .....

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0(1)] and clause 13 therein. It clearly stipulates that advertisement can be issued by Mutual Fund or its sponsor or Asset Management. He submits that as per the SEBI guidelines itself they are required to issue advertisements and also submits that there is no distinction or difference between the statutory advertisement and non-statutory advertisement for the purposes of availing the credit of the service tax. 4.2 On limitation, he submits that OIO traverses beyond the scope of SCN as allegatio .....

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ounsel Submits that there was no suppression in this case where they were asked by the audit query and they submitted copy of the agreement and the whole situation is only revenue-neutral in nature and the scheme of arrangement or scheme of agreement between the appellant and SMF is regulated by SEBI regulations and hence there is no suppression. He submits that decision in the case of Maruti Udyog relied by the adjudicating authority is not acceptable as it relates to inputs used in the manufac .....

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hand, Ld. A.R for the Revenue reiterated the findings of OIO and vehemently opposed the arguments of the appellant. She submits that Coco-Cola case relied by the appellant is not applicable and not related to service tax and there is no case law on credit availment of Asset Management. Here the issue is taxability on the mutual fund on the said management. The credit availed on advertisement service is not an input services for the asset management service. As an Asset Manager, their role is li .....

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is to manage the assets of the mutual fund. 5.1 On limitation, she reiterated the findings in para-26 of OIO and submits that appellant never submitted copy of the agreement to the department and only during the audit, it was detected as a case of wrong availment of credit. She submits that both SCN and OIO are in conformity on the issue and not contradictory. 6. Ld. Advocate, in his rejoinder, countered the arguments and refers to para 5 & 6 of the SCN and findings of OIO at para 26 and sub .....

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9;ble Bombay High Court in the judgement cited supra and therefore it is squarely applicable to the present case. He relies the judgement as the advertisement is on the mutual fund incurred by appellant. ST/42452/2013 7. Ld. Advocate submits that service tax is payable on commission paid to the brokers as brokerage charge and service tax was paid by them under reverse charge mechanism and have rightly availed credit. He referred to para-9 of OIO where the Adjudicating authority denied the credit .....

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brokers/distributors from SMF. Regarding input service, he drew our attention to para 11.3 of OIO and submits that the adjudicating authority has described the role of Mutual Fund and also defined "Asset Management Company" which is extracted from internet source. He submitted copy of internet source at page 49 of the paper book which defines "AMC" whereas at para 11.3 of OIO dt. 11.9.2013, the last sentence of the extract obtained from internet is omitted by the adjudicating .....

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ints brokers/distributors. He also submitted copy of newspaper advertisement dt. 6.8.2015 at page 46 where CBEC has advertised in all leading newspapers wherein it has been clarified that w.e.f. 1.4.2015, the service tax paid by Mutual Funds and Asset Management Companies is available as credit to them for paying Service Tax on their output services. He submits that this was the same position prior to the exemption granted under the negative list where the appellants were paying service tax on t .....

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se of CCE Chennai Vs MRF Ltd., reported in 2007 (244) ELT 601 (Tri.-Che.). 7.2 On the limitation issue, he relied their letter dt. 11.9.2009 addressed to Asst. Commissioner of C.Ex/ST, LTU, Chennai informing that they would be discharging service tax liability on the brokerage paid to Distributors/Agents and the tax so paid would be availed as CENVAT credit whereas the Adjudicating Authority held that they have only informed about payment of service tax and they have not informed availment of ce .....

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or Revenue reiterated the findings of OIO and relied Clause 5 of the Investment Management Agreement where various obligations of the appellant have been clearly spelt out. Nowhere in the obligation, appellant mentioned why they have to carry out any activity on the marketing. Therefore, it is not an 'input service' for the output service i.e. Asset Management Service. She relied the case law of Tribunal's decision in the case of Raj Ratan Castings Pvt. Ltd. Vs CCE Kanpur - 2012 (25) .....

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output services and by including the value of expenses incurred on advertisement and on commission paid to brokers. Whereas the credit availed on both input services was denied on the ground that advertisement expenses is incurred on account of mutual fund which is reimbursable expenditure as pure agent expenditure and it has no relation with output service rendered by the appellant. On perusal of the OIO dt.21.3.2011 at para-16, we find the adjudicating authority has admitted the fact that the .....

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acity subject to the supervision of the Trustees shall be responsible for and have powers of implementing Schemes and make investment decisions and manage the assets of the Schemes of the Mutual Fund in accordance with the Scheme objectives, Deed of Trust and provisions of SEBI Regulations in the best interest of Unit holders. Without prejudice to the generality of the foregoing but subject to the provisions of the Deed of Trust, SEBI Regulations and directives of the Trustees, SAMCL shall : 3.1 .....

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offer document or Scheme particulars approved by the trustees and SEBI. 3.1.3 Implement the specific Scheme in all respects including the allotment and the issue of Unit Certificates to the investors who are successful in getting the Units allotted to them as per the terms of the concerned Scheme and collect the subscriptions/sale proceeds of Units. ... ... 3.1.10 take all steps to protect the investments made out of the Fund and achieve objectives of each Scheme as a diligent and prudent person .....

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e submit true copies thereof. 3.1.14 procure (in so far as it is able) the appointment of nominee/s of the Mutual Fund as Director/s of Companies in which the monies forming part of the Fund are invested. " From the above clauses of agreement, it is abundantly clear that appellant's role is not limited to only managing the assets on day-to-day basis but also vested with powers to implement the scheme after taking approval from the Board of Trustees. As per clause 3.1.33, Asset Managemen .....

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unds) Regulations 1996 [Regulation 30(1)] vide para13 which is reproduced as under:- "All advertisements issued by a mutual fund or its sponsor or asset management company, shall state "all investments in mutual funds and securities are subject to market risks' and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities market." The above clause clearly confirms that advertisements for promoting the mutual fund can be issued or i .....

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vice tax on the gross value. Further, we find that appellants have taken credit on the input documents issued by their vendors towards advertisement. The Chartered Accountant vide his certificate dt. 1.2.1011 has duly certified that the expenditure on the advertisement charges are debited in the Profit and Loss Account of the company and have not been recovered as reimbursements from M/s.SMF. Therefore Revenue's contention that it is not an input service is not justified as it is clearly sti .....

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:- "43. What follows from the above discussion is that the credit is availed on the tax paid on the input service, which is advertisement and not on the contents of the advertisement. Thus it is not necessary that the contents of the advertisement must be that of the final product manufactured by the person advertising, as long as the manufacturer can demonstrate that the advertisement services availed have an effect of or impact on the manufacture of the final product and establish the rel .....

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to the present case. 11. Further, we find that Hon'ble Madras High Court in an unreported judgement dt. 13.2.2015 in the case of CCE Chennai Vs Sundaram Brake Linings Ltd. (supra) on an identical issue allowed the appeal. The ratio of both the decisions are squarely applicable to this case as in the present case appellants have clearly established that they have not reimbursed this advertisement charges from the Mutual Fund owner instead they incurred this expenses and included in the gross .....

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aid to the brokers on the brokerage charges and the tax is to be paid by the appellant as recipient of services under reverse charge mechanism. The taxability and payment of service tax on the commission by the appellant is not under dispute and the adjudicating authority denied credit only on the ground that service tax paid on the brokerage is not an eligible input service. Adjudicating authority also held that the document on which credit availed, is not an eligible document prescribed under .....

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sement issued by CBEC after the introduction of negative list wherein the Board has categorically clarified that service tax paid on the brokerage commission by Mutual Fund and Asset Management Companies is available as credit for paying service tax on their output services. This advertisement was issued consequent on withdrawal of service tax exemption on brokerage commission w.e.f. 1.4.2015. Therefore, it is evident that when there was no exemption for service tax, the Board had categorically .....

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es integra in view of the decision rendered by the Tribunal in the case of Commissioner of Central Excise, Goa, v. Essel Pro-pack Ltd. reported in 2007 (8) S.T.R. 609 (Tri- Mumbai) wherein it was held as under : ... ... ... 5. I agree with reason adopted by the Commissioner (Appeals). The Revenue in their appeal has nowhere contended as to what the specified document for availing credit during the relevant time. If no document was mentioned, TR, challan has to be considered as the proper documen .....

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hey do not prescribe any documents for availing of service tax credit dur-ing the disputed period in respect of the service tax paid on goods transport agency services. The appellant, in the present case, has nowhere contended which were the specified document for availing of such credit during the relevant time. If no documents have been mentioned, TR 6 challan has to be considered as a proper document, reflecting payment of such tax. Further, it is also not the case of the appellant that servi .....

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that the Departments Circular dated 19. November, 2001 observes that once the duty payment is not disputed and it is found that the documents are genuine and not fraudulent, then the manufacturer would be entitled to CENVAT credit on duty paid inputs. 9. In the present case, the authorities below have accepted that the respondents are entitled to such Cenvat Credit. The only point for consideration, in such circumstances is the type of document required to be produced to avail of such credit. Th .....

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