Subscription & Redemption Of Liquid Mutual Fund Units Can't Be Termed As “Trading Of Goods”, CENVAT Credit Admissible: CESTAT

The Bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that the activity of investment in mutual funds does not involve the presence of a service rendered by a service provider towards a recipient of service for some consideration. The activity undertaken would not amount to “service” in terms of Section 65B(44) of the Finance Act, 1994.

In this case, the assessee/appellant took credit of service tax paid on various input services which are used in renting various outward services such as providing Manpower Recruitment/Supply Agency Service, Commercial Training, Coaching, Renting of Immovable property etc.

The assessee had also invested in surplus funds in various mutual funds by way of subscription to mutual funds units. The assessee redeemed such units as and when the additional funds were needed to meet the business requirements.

A Show cause notice was issued to the assessee alleging that the activity of investment in mutual funds is akin to “trading of goods” in the Negative List and hence is an exempt service as defined in Rule 2(e) of CCR read with section 66D(e) of the Finance Act, 1994.

Therefore, CENVAT credit attributable to input services which were used commonly in relation to provision of taxable services as well as trading of goods, is not admissible, and as the assessee did not maintain separate accounts in relation to these two kinds of services in terms of rule 6(2), they are liable to pay an amount equal to 6%/7% of the value of exempted services under rule 6(3) of the CCR.

The adjudicating authority confirmed the demand under SCN. The appeal filed by the assessee has been dismissed by the impugned order.

The assessee submitted that the issue relating to non-reversal of proportionate credit availed on common input services used in relation to redemption of mutual funds by considering it to be trading of goods which is an exempted service under section 66D(e) of the Finance Act, 1994.

The bench opined that the subscription and redemption of liquid mutual fund units cannot be termed as “trading of goods” and, therefore, do not fall under the exempted services under Section 66D(e) of the Finance Act.

The activity to classify as “exempted service” under Rule 2(e) of the Cenvat Credit Rules, 2004 needs to be qualified as “service”, as defined under Section 65B (44) of the Act, meaning thereby that service is an activity carried out by a person for another for consideration and includes a “declared service” but excludes a transfer of title in goods or immovable property by way of sale, gift, etc, added the bench.

In view of the above, the Tribunal allowed the appeal.

Case Title: M/s. Career Point Limited v. Commissioner of Central Goods & Service Tax, Excise and Customs, Udaipur

Case Number: Service Tax Appeal No. 52382 of 2019

Counsel for Appellant/ Assessee: B.L. Narsimhan and Daliya Singh

Counsel for Respondent/ Department: Aejaz Ahmad

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