Godfrey Phillips India Limited Vs Commissioner (CESTAT Delhi)
Mutual Fund Redemption Not “Trading of Goods”; No CENVAT Reversal or Extended Limitation under Service Tax
The CESTAT Delhi held that subscription and redemption of mutual fund units do not amount to “trading of goods/securities” under Section 66D(e) of the Finance Act, 1994 and therefore cannot be treated as “exempted service” requiring proportionate CENVAT credit reversal under Rule 6(3) of the CENVAT Credit Rules, 2004. The department had demanded ₹4.80 crore alleging that frequent mutual fund transactions constituted trading of securities, attracting reversal of common input service credit and invoking extended limitation. The Tribunal, relying on its earlier ruling in Siegwerk India Pvt. Ltd. vs. Commissioner, Central Goods & Service Tax, Commissionerate, Alwar and examining the ingredients of trading laid down in Ambuja Cements Ltd. vs. Commissioner of Customs, Central Excise & GST, Nagpur, held that mutual fund units upon redemption are cancelled and not transferred to a third party, hence lacking essential elements of trading. Consequently, no CENVAT reversal was required and extended limitation was not invocable. The demand, interest and penalty were set aside.
Facts:
Godfrey Phillips India Limited (“the Appellant”) is engaged in manufacture of cigarettes, pan masala and tobacco products at its units, providing taxable services like management consultant, consulting engineer, manpower recruitment/supply, business auxiliary, renting of immovable property, legal consultancy and sponsorship services, registered as Input Service Distributor (ISD), who complied with proportionate reversal of common input service credit under Rule 6(3)(ii) r/w Rule 6(3A) of CENVAT Credit Rules, 2004 and distributed balance credit to manufacturing units under Rule 7, whose surplus profits from sales were invested in Mutual Fund schemes and redeemed as needed for business functioning without separate trading accounts.
