CESTAT Rules, Subscription & Redemption Of Liquid Mutual Fund Units Can't Be Termed As “Trading Of Goods”, CENVAT Credit Admissible
Pranav B Prem
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Ms. Binu Tamta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member), held that subscription to and redemption of liquid mutual fund units cannot be regarded as "trading of goods", and thus, do not fall under the exempted services category under Section 66D(e) of the Finance Act, 1994. Consequently, the Tribunal allowed the appeal and ruled that proportionate CENVAT credit cannot be denied on input services used in connection with such investment activities.
The appellant, M/s Career Point Ltd., is engaged in providing taxable services such as Manpower Recruitment/Supply Agency Service, Commercial Training and Coaching, Renting of Immovable Property, Works Contract Service, and Legal Consultancy Services. In the course of its operations, the appellant availed credit of service tax paid on various input services used for providing the aforementioned taxable services. Additionally, the appellant invested surplus business funds in liquid mutual fund units and redeemed them when required to meet business needs.
A Show Cause Notice was issued to the appellant by the department, alleging that the activity of investment in mutual funds amounted to “trading of goods” falling under the Negative List of services and thus qualified as an exempted service under Rule 2(e) of the CENVAT Credit Rules, 2004 (CCR) read with Section 66D(e) of the Finance Act, 1994. The department further alleged that since the input services were used for both taxable and exempted services, and the appellant had not maintained separate accounts, it was liable to reverse proportionate CENVAT credit or pay an amount equivalent to 6%/7% of the value of the exempted services under Rule 6(3) of the CCR.
The adjudicating authority accepted this reasoning and confirmed the demand of ₹87,76,820 along with interest and penalty of an equivalent amount under Rule 15(3) of CCR read with Section 78 of the Finance Act, 1994. The Commissioner (Appeals) also dismissed the assessee’s appeal. Aggrieved, the appellant preferred the present appeal before the Tribunal.
In support of its case, the appellant relied on a series of CESTAT decisions, where it was held that investment in mutual funds does not amount to “trading of goods” or an exempted service. These included Siegwerk India Pvt. Ltd. v. Commissioner of CGST [Service Tax Appeal No. 52950 of 2019 dated 21.03.2025], Ambuja Cements Ltd. v. Commissioner of Customs, Central Excise & GST [[Final Order No. 85393/2023 dated 13.01.2023]], Finolex Cables Ltd. v. Commissioner of Central Excise and Service Tax [Final Order No. A/87423/2024 dated 25.11.2024 in Excise Appeal No. 85323 of 2016 ], Ace Creative Learning Pvt. Ltd. v. Commissioner of Central Tax [Final Order No. 20105/2021 dated 15.04.2021 ], Tata Sons Ltd. v. Commissioner of Service Tax [Final Order No. 86042-86043/2022 dated 01.11.2022], Instakart Services Pvt. Ltd. v. Commissioner of Central Tax [Final Order No. 20415/2024 dated 13.03.2024], and others.
The Tribunal quoted extensively from the decision in Siegwerk India Pvt. Ltd., which held that the subscription and redemption of mutual fund units do not involve a transaction between a service provider and recipient for consideration and hence do not qualify as “service” under Section 65B(44) of the Finance Act. Accordingly, such transactions do not fall under the definition of “exempted service” as outlined in Rule 2(e) of the CCR.
The Bench observed: “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. Thus, the activity undertaken by the appellant would not amount to ‘service’ under Section 65B(44) of the Finance Act.”
Further, the Tribunal concluded that since the activity in question is not a “service”, the denial of CENVAT credit on the basis that it relates to an exempted service was unsustainable in law. The Tribunal emphasized that for an activity to be considered an exempted service under Rule 2(e), it must first qualify as a “service”, which was not the case here. Accordingly, the Tribunal set aside the orders passed by the lower authorities and allowed the appeal in full, holding that no reversal of proportionate credit or payment under Rule 6(3) of the CCR was required.
Appearance
For Appellant/ Assessee: B.L. Narsimhan and Daliya Singh
For Respondent/ Department: Aejaz Ahmad
Cause Title: M/s. Career Point Limited V. Commissioner of Central Goods & Service Tax, Excise and Customs, Udaipur
Case No: Service Tax Appeal No. 52382 of 2019
Coram: Hon’ble Ms. Binu Tamta [Member (Judicial)], Hon’ble Ms. Hemambika R. Priya [Member (Technical)]
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