Service Tax – Quashing of CBEC Circular upheld.
The Andhra Pradesh High Court in had quashed the CBEC Circular No. 66/15/2003-S.T., dated 5-11-2003. The circular reads as under :
I am directed to say that some doubts have been raised regarding application of service tax on the activity of Mutual Fund Distribution as to whether
1. the commission received by distributors on mutual fund distribution as liable to Service Tax under the category of Business Auxiliary Services?
2. the services provided is exempt from service tax in terms of Notification No. 13/2003, dated 20-6-2003?
In this connection, it is clarified that the services provided as referred above are primarily in nature of the services of commission agent in relation to clause (ii) and (iv) of the category of services mentioned in the definition of Business Auxiliary Services and hence should be leviable to service tax under this category. This activity does not get covered under exemption Notification No. 13/2003-S.T., dated 20-6-2003, as this is not in relation to sale or purchase of goods. The exemption provided under Notification 13/2003-S.T. is applicable only for commission agents dealing in goods .
The High Court noted that as per Section 37B proviso (a), the CBEC cannot issue a circular, so as to require any Central Excise Officer to make particular assessment or to dispose of a particular case in a particular manner.
The High Court found the Circular illegal, contrary to the proviso to Section 37B(a) of the Act and accordingly quashed it. This was in 2004. The Board did not withdraw the Circular, but appealed to the Supreme Court.
The Supreme Court did not find any error in the judgement of the High Court. The Supreme Court noted,
Government had issued Notification No. 13 of 2003-Service Tax whereby it exempted the 'Business auxiliary services provided by a commission agent' from the service tax leviable thereon under sub-Section (2) of Section 66 of the Finance Act, 1994. Thereafter, circular dated 05.11.2003 was issued in which it is stated that having regard to some doubts that had arisen regarding application of service tax on the activity of mutual fund distribution, it was clarified that the commission received by distributors on mutual fund distribution would be liable to service tax as it would not fall within the expression 'business auxiliary services'. This circular dated 05.11.2003 has been set aside by the High Court in the impugned judgment on the ground that it amounts to foreclosing discretion or judgment that may be exercised by the quasi judicial authority while deciding a particular lis under particular circumstances. The High Court referred to the proviso to Section 37B of the Central Excise Act, 1944, which categorically states that such kind of circulars cannot be issued .
The Revenue Appeal was dismissed.
God knows why the Board issued this Circular – it simply stated the obvious. Still mysterious is why the Government took the matter to the Supreme Court. The High Court had only explained the law. More mysterious is why the assessee challenged the circular. Its liability to pay tax certainly did not depend on the circular.