Service tax is payable on equity research as market research agency.

 

M/s. Kotak Security Ltd. vs. CST, Mumbai-I. (2013 – TIOL – 1054- CESTAT-MUM)

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 thusnon-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, it was contended that the Appellant and KMCC jointly providedservices to clients on a cost/revenue sharing basis, and thus out of tax net. '

Held:

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 Service 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 ResearchAgency 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.