By Puloma Dalal, Jayesh Gogri, Chartered Accountants
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Service tax is payable on equity research as market research agency.
Facts:
The
Appellant conducted equity research and prepared research reports on
the financials of listed companies for their affiliate company M/s.
Kotak Mahindra Capital Company Ltd. (KMCC) and received research fees on
which no service tax was paid. An SCN demanding tax, interest and
penalties was issued to the Appellant under the category “Market
Research Services”.
The Appellant contended that they did not
provide any services in relation to product, service or utility and thus
non-taxable under the said category. It further contended that no
service was provided by them to KMCC as it was under common shareholding
of the Kotak Mahindra Group. Further, placing reliance on Circular
No.109/3/2009- ST dated 23-02-2009, it was contended that the Appellant
and KMCC jointly provided services to clients on a cost/revenue sharing
basis, and thus out of tax net.
Held:
Ordering the pre-deposit of 50% of the dues confirmed, the Hon. Tribunal observed as follows:
•
The Appellant did not produce any evidence to prove that the amount
shown under “Fee Income/Research Fees Received” in its Profit & Loss
Account was for services other than “Research Activities” undertaken
for KMCC.
• In respect of sharing of expenses not to be
considered as consideration; when a service provider charges a
consideration, he takes into account all the expenses incurred by him
and includes an element of profit. Thus, expenses were an integral part
of the consideration charged. That would not mean that the amount
received is not a consideration for the services rendered. Service tax
was a tax on provision of service and hence, whatever amount was charged
for such provision, service tax was payable, irrespective of whether
any profit was made by the service provider in the said transaction.
•
It was not in dispute that the Appellant conducted equity research and
prepared reports on the financials of the listed companies. Equities
would come under the categories of products and were considered as goods
under the Sale of Goods Act, 1934. Therefore, research on equity was a
product research. Referring to the definition of Market Research Agency
u/s. 65(69), the activity undertaken by the Appellant would fall within
its scope and accordingly, the Appellant was, prima facie, liable to pay
service tax on the said activity.
• The Appellant informed the
department of the activities undertaken by them only in March 2004 and
September 2004 and SCN was issued in March 2005. It was the date of
knowledge that was relevant for computing the time limit and thus the
SCN was not held time barred.
