No Service Tax On MF Agents

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New Delhi, May 7: The Delhi high court has quashed a circular issued by the finance ministry in November 2003 making mutual fund distributors liable to pay service tax. The order implies that the status quo is maintained and there is no additional burden on investors in the form of service tax which, if implemented, would have been passed on to them by distributors.

The two-bench judges who passed the order were hearing a petition filed by mutual fund distributors Bajaj Capital challenging the circular which was in the form of a clarification that mutual fund agents were liable to pay service tax of 8 per cent.

The government had issued a notification in June 2003 which exempted commission agents who trade in goods from paying the service tax. The circular issued later on, however, clarified that mutual fund distributors could not be classified as traders of goods as they dealt in securities and investment products.

The court, disposing off the case, held that a circular could not overule a notification.

Reacting to the court order, Association of Mutual Funds in India (Amfi) chairman AP Kurian said: ‘‘I am yet to go through the court order. But if the order is based on a technical ground, the government can either issue a notification or can implement it through the budget.’’

Welcoming the HC order, Bajaj Capital director Sanjiv Bajaj said, ‘‘This is a big reprieve for distributors and investors.’’