No Service Tax On Entry, Exit Loads Charged By MFs: FM

Now, the mutual fund houses can have a sigh of relief. The Finance Ministry has announced that the entry and exit load charged from investors by mutual funds would not attract service tax under the category of fund management services. The revenue department has clarified that entry and exit load charges are not towards the fund management services provided by an asset management company (AMC), but to meet the initial issue expenses and other specified expenses of the mutual fund. Initial issue expenses of a mutual fund include initial brochures, SEBI approvals, advertisement, registrars, preparation of certificate, postage and distribution etc. The Central Board of Excise and Customs (CBEC) has come up with this clarification in the wake of questions raised, especially within the revenue department, on whether service tax would be chargeable on the `entry and exit' load amount charged by a mutual fund to the investor.
The Government has gone along with the recent Customs, Excise and Service Tax Appellate Tribunal (CESTAT) judgment, which had said that service tax cannot be levied on the entry and exit load charged on an investor by a mutual fund. In May last year, the Directorate General of Central Excise and Intelligence (DGCEI) had shot off letters to various fund houses and sought information as to whether they were paying service tax on the entry and exit loads charged from investors. The DGCEI took a view that service tax was applicable on the entry and exit loads as they represented the value of services rendered by the mutual fund to investors. The total assets under management of the Indian mutual industry as at end-April 2007 stood at Rs 3,52,670 crore.