Subscription, Redemption Of Mutual Funds Units Can’t Be Termed As Sale And Purchase Of Securities: CESTAT
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the act of subscribing to or redeeming mutual fund units does not amount to a sale or purchase of securities and, therefore, cannot be classified as “trading of goods” or as an “exempted service” under the Finance Act, 1994. The Tribunal clarified that the activity in question does not qualify as a “service” under Section 65B(44) and hence is not liable to reversal of Cenvat credit under the Cenvat Credit Rules, 2004.
This ruling was rendered in the case of M/s. Siegwerk India Pvt. Ltd. v. Commissioner of CGST, Alwar, where the Bench comprising Ms. Binu Tamta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member) allowed the appeals filed by the assessee and set aside the orders passed by the Commissioner (Appeals), Jaipur.
Factual Matrix
The appeals concerned two show cause notices covering the periods from July 2012 to April 2015 and April 2016 to June 2017. The Department’s contention was that Siegwerk India had availed Cenvat credit on common input services such as Chartered Accountant services, telephone services, and legal services, which were also utilized in connection with redemption of mutual fund units. According to the Department, this activity amounted to "trading of goods" which is treated as an exempted service under Section 66D(e) of the Finance Act. Consequently, it demanded proportionate reversal of Cenvat credit under Rule 6(3) of the Cenvat Credit Rules, 2004.
The Commissioner (Appeals) upheld the original orders dated 31.08.2019 and 24.09.2019, prompting the appellant to challenge them before the Tribunal.
Notably, an identical issue involving the same assessee for the period April 2015–16 had earlier been adjudicated by the Tribunal in Final Order No. 58747/2024 dated 01.10.2024, in which the Tribunal had ruled in favour of the assessee.
Tribunal’s Legal Reasoning
The Tribunal began by referring to its earlier order in the appellant’s own case and noted that the issue was squarely covered by that decision. It emphasized that for any activity to qualify as an “exempted service” under Rule 2(e) of the Cenvat Credit Rules, it must first fall within the definition of “service” as per Section 65B(44) of the Finance Act.
Quoting from the earlier decision, the Tribunal reiterated: “The activity of subscription and redemption of the units of mutual funds cannot be said to be an activity of sale and purchase of the securities. It would, therefore, not be an activity relating to trading in securities.”
Accordingly, it concluded that such activity cannot be termed “trading in goods” under Section 66D(e), and the requirement to reverse Cenvat credit does not arise.
Going further, the Tribunal clarified that even otherwise, the act of investment in mutual funds cannot qualify as a “service” since it does not involve a bilateral relationship between a service provider and a recipient for consideration. The relevant portion reads: “For an activity to fall under the ambit of ‘exempted service’ under Rule 2(e) of the Credit Rules, the activity has to first qualify as a ‘service’. Section 65B(44) stipulates that ‘service’ means any activity carried out by a person for another for consideration… There has to be a service provider who provides a service to the recipient in lieu of consideration.”
The Bench found that the Department failed to demonstrate the presence of such a relationship in the case of mutual fund transactions. The investment was found to be a unilateral act without the essential ingredients of a “service” under the Finance Act.
Precedents Cited
In support of its view, the Tribunal relied on the following key decisions:
Ambuja Cements Ltd. v. CC, CE & GST, Nagpur – 2023 (5) TMI 806 – CESTAT Mumbai
Ace Creative Learning Pvt. Ltd. v. CCT, Bengaluru South – 2021 (4) TMI 687 – CESTAT Bangalore
Tata Sons Ltd. v. CST-I, Mumbai – 2022 (11) TMI 325 – CESTAT Mumbai
Space Matrix Design Consultants Pvt. Ltd. v. CCT, Bangalore North – 2019 (4) TMI 1599 – CESTAT Bangalore
In these cases, it was held that financial investments like mutual fund transactions do not constitute a “service” and thus do not require reversal of Cenvat credit.
Consistency with Earlier Orders
Since the issue was identical to that already decided in favour of the assessee by the Tribunal in its earlier order (Final Order No. 58747/2024), the Bench found no reason to take a different view. It observed: “As the issue stands settled in view of the earlier decision, the impugned orders deserve to be set aside.” The Tribunal further noted that since the appeals were being allowed on merits, it was unnecessary to go into other alternative arguments raised by the appellant.
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Verdict
The Tribunal allowed the appeals, set aside the orders-in-appeal dated 09.09.2019, and quashed the demand for reversal of Cenvat credit. It concluded that redemption of mutual fund units cannot be equated to either trading or a service, and hence does not attract the provisions of Rule 6 of the Cenvat Credit Rules.
Appearance
Shri S.C. Vaidyanathan and Ms. Mehak Mehra, Advocates for the appellant.
Shri Rajeev Kapoor, Authorised Representative for the respondent.
Cause Title: M/s. Siegwerk India Pvt. Ltd. V. Commissioner of CGST
Case No: Service Tax Appeal No.52949 of 2019
Coram: Hon’ble Ms. Binu Tamta [Member (Judicial)], Hon’ble Ms. Hemambika R. Priya [Member (Technical)]
[Read/Download order]
