Case Law Details
Ace Creative Learning Pvt. Ltd. Vs Commissioner of Central Tax (CESTAT Bangalore)
Appellant is providing Commercial Training and Coaching Services and they have also invested in the mutual funds and have earned profit during the year 2014-15, 2015-16 & 2016-17 which they have shown as under the head ‘other income’. The Department has wrongly considered the investment in mutual fund as trading in mutual funds and has issued a notice on the presumption that the appellant is providing exempted services which is trading in mutual funds and has not maintained separate records for common input services availed in providing the output services and exempted activity i.e. trading and hence are liable to pay 6%/7% of the amount of exempted services. Further I find that the ‘trading’ has not been defined under the Service Tax but in the context of securities,‘trading’ means an activity where a person is engaged in selling the goods and occupy for the purpose of making profit but certainly trading is different from redemption of mutual fund units, in the present case appellant cannot transfer the mutual fund units to third party and give only by redemption to the mutual fund because the appellant is not permitted to trade mutual fund unit in the absence of a license from the SEBI. There is a restriction on the right to transfer unit and the appellant cannot transfer units to any other person. Further I find that the appellant cannot be termed as “service provider” because he only makes an investment in the mutual fund and earn profit from it which is shown in the Books of Accounts under the head “other income”. Hence the question of invoking Rule 6 does not arise and I am of the view that Department has wrongly invoked the provisions of Rule 6(3) demanding the reversal of credit on the exempted services. I also find that substantial demand is time-barred as during the audit, the Department entertained the view that the appellant is engaged in providing the exempted services and consequently issued the show-cause notice. The appellant has been filing the returns under the taxable service of „Commercial Training and Coaching and has provided all the records to the Department during the course of investigation and has not suppressed any material fact from the Department and in view of the various decisions relied upon by the appellant, extended period cannot be invoked where the Revenue‟s case is based on Balance Sheet and income return and other records of the assessee. In view of my discussion above, I am of the considered view that the impugned order is not sustainable in law and the same is set aside by allowing the appeal of the appellant.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The present appeal is directed against the impugned order dated 30/12/2019 passed by the Commissioner of Central Tax (Appeals) Bangalore whereby the learned Commissioner has rejected the appeal of the appellant and upheld the Order-in-Original. Briefly the facts of the present case are that the appellant is engaged in providing taxable services viz. Commercial Training & Coaching Services as defined under Section 65B(44) of the Finance Act, 1994 and are availing the facility of cenvat credit of inputs, capital goods and input services under the Cenvat Credit Rules, 2004. During the course of verification of the appellant‟s records by the Audit wing of the Department involving the period from 2012-2017, it was observed that for the period involving 2014-2015, 2015-16 & 2016-17, the appellant has declared Profit on sale of Mutual fund investments involving amounts of Rs. 16,60,045/- (Rupees Sixteen Lakhs Sixty Thousand and Forty Five only), Rs. 36,82,138/- (Rupees Thirty Six Lakhs Eighty Two Thousand One Hundred and Thirty Eight only) and Rs. 57,04,645/- (Rupees Fifty Seven Lakhs Four Thousand Six Hundred and Forty Five only) respectively aggregating to Rs. 1,10,46,828/- (Rupees One Crore Ten Lakhs Forty Six Thousand Eight Hundred and Twenty Eight only). Further the Department observed that the appellant is engaged in purchase and redemption of various mutual fund units. Mutual funds are in the nature of Securities, which are liable to be treated as “goods” hence the appellants were providing both taxable and exempted services but had failed to maintain separate Books of Accounts for such receipt and use of input services used commonly for the provision of both taxable and exempted services. Department further found that the appellant neither opted nor followed the procedure prescribed under Rule 6(3)(ii) for payment of such amount as determined in Rule 6(3A). Hence as per the Department the appellant is liable to pay an amount as determined in terms of Rule 6(3)(i) i.e. 6%/7% of the value of services contained in the trading activities. On the basis of these facts, the show-cause notice dated 15/06/2018 was issued and after following the due process, the original authority vide Order-in-Original dated 11/12/2018 confirmed the demand along with interest and penalty. Aggrieved by the said order, appellant filed appeal before the Commissioner and the Commissioner rejected the same. Hence, the present appeal.
2. Heard both the parties and perused the records.
3. Learned consultant for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. He further submitted that the adjudicating authority has wrongly relied upon the decision of the Supreme Court in the case of Venkataswami Naidu & Co. Vs. CIT 1959 (35) ITR 594 (S.C) which deals with Income Tax on sale of plots. He further submitted that adjudicating authority has completely ignored the fundamental principle that in order to levy service tax there should be a service provider and a service receiver and in the present case, the appellant cannot be termed as „service provider‟. He further submitted that an investor who invested in mutual funds units cannot be designated as a service provider either at the time of forwarding money for investment or for that matter at the time of encashing investment by returning the same units to the fund. He further submitted that the adjudicating authority has wrongly relied upon the decision of authority for Advance Rulings in the context of Income Tax where issue was regarding taxing of income from sale of securities in the hands of firms involved in trading in securities i.e. equity funds trading in securities. He further submitted that here the appellant engaged in trading of securities, the income there from would not be booked under “other income” but would be the main operating revenue of the entity. He further submitted that the trading has not been defined under service tax and will have to be understood in the context of securities. It is different from redemption. Redemption is the act of redeeming which in its ordinary meaning is equal to bringing off a charge/obligation by payment. He further submitted that for trading the mutual fund unit a person is required to have the license under Regulation 37 of SEBI and the appellant does not possess any such license to dealing mutual funds. He further submitted that the appellant on maturity simply returns the unit to the mutual fund itself without any person being involved in transfer of units. He further submitted that both the authorities have wrongly come to the conclusion that the appellant is a trader in securities in the absence of free transferability of mutual fund units to third parties. He further submitted that once the appellant is not a trader in the securities, the question of proportionate reversal on common input services used for both trading and output services under Rule 6(3)(b) does not arise. He further submitted that the Department has wrongly invoked the extended period of limitation and the substantial demand is barred by limitation. He further submits that the period in dispute is from 2014-15 to 2015-16 and 2016-17 and the show-cause notice was issued on 15/06/2018 which is substantially time-barred. He further submitted that suppression cannot be alleged as the appellant has been regularly filing returns and has provided all the information and the records during the audit and the show-cause notice is the outcome of an audit by the Department and hence extended period cannot be invoked. For this submission, learned consultant relied upon the following decisions:
- Anand Nishikawa Co. Ltd. Vs. CCE, Meerut – 2005 (188) E.L.T. 149 (SC)
- Amco Batteries Ltd. Vs. CCE, Bangalore – 2003 (153) E.L.T. 7 (SC)
- Chemphar Drugs & Liniments Vs. CCE – 1989 (40) E.L.T. 276 (SC)
- Cosmic Dye Chemical Vs. CCE, Bombay – 1995 (75) E.L.T. 721 (SC)
- Kumbhi Kasari Sahakari Kharkhana Ltd. Vs. CCE, Pune II – 2011 (266) E.L.T. 87 (Tri.-Mumbai)
- M/s Fasttrack Packers Pvt. Ltd. Vs. CCE, Cus., ST, Nashik II – 2019 ACR 202 CESTAT Mumbai
- M/s. Shankar Advertising Agency Vs. CCE, Agra – 2019 ACR 501 CESTAT Allahabad
4. On the other hand, the learned AR reiterated the findings of the impugned order.
5. After considering the submissions of both the parties and perusal of the material on record, I find that the appellant is providing Commercial Training and Coaching Services and they have also invested in the mutual funds and have earned profit during the year 2014-15, 2015-16 & 2016-17 which they have shown as under the head “other income”. The Department has wrongly considered the investment in mutual fund as trading in mutual funds and has issued a notice on the presumption that the appellant is providing exempted services which is trading in mutual funds and has not maintained separate records for common input services availed in providing the output services and exempted activity i.e. trading and hence are liable to pay 6%/7% of the amount of exempted services. Further I find that the „trading‟ has not been defined under the Service Tax but in the context of securities, „trading‟ means an activity where a person is engaged in selling the goods and occupy for the purpose of making profit but certainly trading is different from redemption of mutual fund units, in the present case appellant cannot transfer the mutual fund units to third party and give only by redemption to the mutual fund because the appellant is not permitted to trade mutual fund unit in the absence of a license from the SEBI. There is a restriction on the right to transfer unit and the appellant cannot transfer units to any other person. Further I find that the appellant cannot be termed as “service provider” because he only makes an investment in the mutual fund and earn profit from it which is shown in the Books of Accounts under the head “other income”. Hence the question of invoking Rule 6 does not arise and I am of the view that Department has wrongly invoked the provisions of Rule 6(3) demanding the reversal of credit on the exempted services. I also find that substantial demand is time-barred as during the audit, the Department entertained the view that the appellant is engaged in providing the exempted services and consequently issued the show-cause notice. The appellant has been filing the returns under the taxable service of „Commercial Training and Coaching and has provided all the records to the Department during the course of investigation and has not suppressed any material fact from the Department and in view of the various decisions relied upon by the appellant, extended period cannot be invoked where the Revenue‟s case is based on Balance Sheet and income return and other records of the assessee. In view of my discussion above, I am of the considered view that the impugned order is not sustainable in law and the same is set aside by allowing the appeal of the appellant.
(Order was pronounced in Open Court on 15/04/2021)
