Sub-Distributor Liable for Service Tax, Cannot Claim Reverse Charge Benefit Meant for Distributor: CESTAT [Read Order]

In a recent decision, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad Bench, dismissed the appeal of a sub‑distributor of mutual funds and upheld the service‑tax demand of ₹1,95,356 along with interest and penalties for the financial year 2015‑16.

The appellant, Manoj Kumar Gupta, held a service‑tax registration for providing Business AuxiliaryServices. Information from the Income Tax Department revealed that Gupta had received ₹13.47 lakh as service income during 2015‑16 but had neither paid service tax nor filed the mandatory ST‑3 return.

After repeated notices seeking clarification and documents went unanswered, the department treated the entire amount as taxable receipts and issued a Show Cause Notice alleging suppression of facts and intent to evade tax.

The adjudicating authority confirmed the tax demand, imposed an equal penalty under Section 78, and additional penalties under Sections 77(1)(c) and 77(2) for non‑submission of documents and returns.

The counsel for the appellant, Abhinav Mishra, argued that Gupta acted as a sub‑distributor of a mutual‑fund distributor, and his services were exempt under Notification No. 30/2012‑ST, as amended by Notification No. 7/2015‑ST, which shifted the tax liability to the service recipient under the reverse‑charge mechanism.

Also stated that Gupta had relied on his Chartered Accountant’s advice that no tax was payable and that some payments from UCO Bank and Brahmavart Commercial Co‑operative Bank were wages for recovery work, not taxable services. He also claimed the demand was time‑barred.

On the other hand, the respondent reiterates the findings recorded in the impugned Order‑In‑Appeal.

After considering the matters, the tribunal observed that the appellant was not a distributor of mutual funds but a sub‑distributor, and the reverse‑charge exemption applied only to distributors dealing directly with mutual funds, not to sub‑distributors.

The Tribunal cited the Master Circular dated 23 August 2007 and the Larger Bench ruling in Melange Developers Pvt Ltd. (2020 (33) G.S.T.L. 116 Tri‑LB), which clarified that sub‑contractors are independent taxable service providers and must pay service tax on their output services even if the main contractor has paid tax.

It held that exemptions must be proved through clear and admissible evidence, and mere assertions or affidavits were insufficient. Since Gupta failed to produce agreements, invoices, or proof of tax payment by the principal distributor, the claim of reverse charge could not be accepted.

The bench Sanjiv Srivastava (technical member) noted that “I do not find any merits in the grounds taken by the Appellant on the issue of limitation. As upheld the demand made by invoking the extended period of limitation, penalty under Section 78 is also upheld.

Appellant failed to provide the information when called for, penalty under Section 77(1)(c) is also upheld and so is penalty under Section 77(2) of the Finance Act, 1994 for non filing of the ST-3 Returns during the period 2015-16. I do not find any merits in the appeal. ”

Accordingly, the appeal was dismissed

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