In a fresh twist, Central Board of Excise & Customs (CBEC) officials have told AMFI that they are not concerned as to who bears service tax so long as they collect service tax. Cafemutual has a copy of the letter written by H N Sinor, CEO, AMFI sent to AMCs.
Sinor has confirmed this development and said that it is just a re-introduction of earlier service tax regime in which distributors were paying service tax.
Representatives from the MF industry which included Leo Puri MD, UTI and H N Sinor, CEO, AMFI recently met Javed Shah, Chiarman, CBEC to get clarity on the service tax advertisements published on August 06. The advertisements said “Liability to pay service tax on service provided by mutual fund agents and distributors is on mutual fund and asset management companies (recipients of the services) and not on mutual fund agents and distributors. The said service tax paid by mutual funds and asset management companies is available as credit to them for paying service tax on their output services.”
Since the advertisement said that service tax burden has to be ‘borne’ by AMCs, distributors interpreted that they are exempted from paying service tax. However, AMFI decided to take up the matter with CBEC for further clarification.
In the letter, AMFI said that AMCs were paying service tax under reverse charge mechanism and the same methodology was followed by AMCs till 2012 when service tax was in force.
In this meeting, CBEC officials said that the methodology followed by the industry under reverse charge mechanism is in conformity with the provisions of law.
“Loading of service tax in commission amount is subject matter of commercials between two parties (AMC and distributor) and service tax authorities have nothing do with it,” said CBEC officials.
In 2012, the government had put the services of mutual fund agents under the negative list which exempted them from paying service tax. Till 2012, AMCs were deducting service tax and paying it to the government. In Budget 2015, this exemption was withdrawn.
The sales head of a foreign fund house is of the view that distributors will continue to bear service tax burden. “The budget has removed the exemption given to distributors to pay service tax. It is just a re-introduction of the earlier service tax regime. Therefore, distributors have to bear the service tax burden.”
Reporting by Ravi Samalad & Nishant Patnaik
