Subscription & Redemption of Liquid Mutual Fund Units cannot be Termed as “Trading of Goods”, Exemption Not Allowable: CESTAT [Read Order]

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that subscription and redemption of liquid mutual fund units cannot be termed as ‘Trading of Goods’.

The appellant/assessee, Career Point Limited, offers taxable services such as commercial training, coaching, immovable property rental, works contract services, legal consulting, and manpower recruitment/supply agency services. In order to rent the aforementioned outward services, the appellant claimed credit for service tax paid on a variety of input services. As part of its business strategy, the appellant also subscribed to mutual fund units and invested excess monies in a variety of mutual funds.

3000 Illustrations, Case Studies & Examples for Ind-AS & IFRS - CLICK HERE

When more money was required to satisfy the demands of the firm, the appellant redeemed those units. On September 14, 2017, the appellant received a show-cause notice claiming that investing in mutual funds is an exempt service under Rule 2(e) of the CCR read with section 66D(e) of the Act since it is similar to "trading of goods" in the Negative List.

As a result, CENVAT credit for input services that were frequently used in connection with the provision of taxable services and the trading of goods is not admissible. Additionally, because the appellant failed to keep separate accounts for these two types of services as required by rule 6(2), they are required to pay 6% or 7% of the value of exempted services under rule 6(3) of the CCR. The demand was validated under SCN by the adjudicating authority. According to the order, the appellant's appeal was rejected.

Monetary Limits for Filing Income Tax Appeals before HC Enhanced to Rs. 2 Crores: Chhattisgarh HC [Read Order]

The appellant argued that the non-reversal of proportionate credit obtained on common input services used in connection with mutual fund redemption was an exempt service under section 66D(e) since it was deemed to constitute trade of goods.

Complete practical guide to Drafting Commercial Contracts - CLICK HERE

The two member bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that there is no requirement that a service be provided by a service provider to a service recipient in exchange for payment when investing in mutual funds. The action would not qualify as "service" under Section 65B(44) of the Finance Act, 1994, in accordance with the guidelines established in numerous rulings.

While granting the appeal, the tribunal ruled that subscription and redemption of liquid mutual fund units do not qualify as "trading of goods" and, as a result, are not exempt services under Section 66D(e) of the Finance Act.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates