2024 (9) TMI 1248 - AT - Service Tax

CESTAT allows CENVAT credit appeal on exempt services involving mutual fund investments under Rule 6(3)

JSW DHARAMTAR PORT PVT LTD Versus THE COMMISSIONER OF CGST & CENTRAL EXCISE-RAIGAD

CESTAT Mumbai-AT allowed the appeal regarding CENVAT credit on exempt services. The case involved investment of surplus cash in mutual funds and trading ... CENVAT Credit - exempt service or not - Requirment to pay service tax under Rule 6(3) of Cenvat Credit Rules, 2004 - non-maintenance of cenvat credit account for inputs and input services used for providing exempted output services - investment of surplus cash in mutual funds - trading of securities - HELD THAT:- Considering the fact that the similar issue came up before this Tribunal in the case of M/S. COGNIZANT TECHNOLOGY SOLUTIONS INDIA PRIVATE LIMITED VERSUS THE COMMISSIONER OF GST & CENTRAL EXCISE, CHENNAI [2024 (9) TMI 922 - CESTAT CHENNAI] decided in favour of the appellant wherein it has been held 'the authorities below have grossly erred in demanding the tax on the ‘investment’ made, by treating the same as ‘service’ although exempted.' As this Tribunal in the case of Cognizant Technology Solutions India Pvt.Ltd has dealt with investment of surplus cash in mutual fund which does not amount to trading activity, there are no merit found in the impugned order and the same is set aside - appeal allowed. Issues Involved:1. Whether the investment of surplus cash in mutual funds amounts to trading of securities, which is an exempt service under Rule 2(e) of Cenvat Credit Rules, 2004.2. Whether the appellant is liable to pay service tax under Rule 6(3) of Cenvat Credit Rules, 2004 for not maintaining separate cenvat credit accounts for inputs and input services used for providing exempted output services.3. Whether the extended period of limitation was rightly invoked by the Revenue.Issue-wise Detailed Analysis:1. Investment in Mutual Funds as Trading of Securities:The core issue was whether the appellant's investment in mutual funds should be considered as trading of securities, thereby categorizing it as an exempt service under Rule 2(e) of Cenvat Credit Rules, 2004. The Revenue argued that the investment of surplus cash in mutual funds amounts to trading of securities. However, the Tribunal referenced a similar case, Cognizant Technology Solutions India Pvt. Ltd., where it was held that investing surplus income in mutual funds does not constitute trading of securities. The Tribunal noted that the appellant's financial statements categorized the income from mutual funds under 'cash flow from investing activities' and not under trading. The appellant was not engaged in providing purchase and sale of mutual funds/securities and did not have the necessary licenses from SEBI or the Stock Exchange for such activities. The income received was construed as capital gains from investment, not as consideration for providing any service. Therefore, the Tribunal concluded that the appellant's activity of investing in mutual funds does not amount to trading of securities.2. Liability to Pay Service Tax under Rule 6(3) of Cenvat Credit Rules, 2004:The Tribunal examined whether the appellant was liable to pay service tax under Rule 6(3) of Cenvat Credit Rules, 2004 for not maintaining separate cenvat credit accounts for inputs and input services used for providing exempted output services. The Tribunal referenced multiple precedents, including Ace Creative Learning (P.) Ltd., Ambuja Cement Ltd., and United Racing and Blood Stock Breeders Ltd., which established that investment in mutual funds does not equate to trading of goods or exempted services. The Tribunal emphasized that trading in securities involves transfer of title in goods, which cannot be considered a service. Consequently, the Tribunal held that the appellant was not liable to reverse the proportionate credit or pay an amount under Rule 6(3) as the investment in mutual funds did not constitute an exempted service.3. Extended Period of Limitation:The Tribunal also addressed the issue of whether the extended period of limitation was rightly invoked by the Revenue. The Tribunal noted that the appellant had been filing returns and providing all necessary records during the course of investigation. The Revenue's case was based on the appellant's financial statements, balance sheets, and income returns, which were already disclosed. The Tribunal held that there was no suppression of material facts by the appellant, and therefore, the extended period of limitation could not be invoked. The demand raised by the Revenue was deemed time-barred.Conclusion:The Tribunal concluded that the investment of surplus cash in mutual funds does not amount to trading of securities and is not an exempt service under Rule 2(e) of Cenvat Credit Rules, 2004. Consequently, the appellant was not liable to pay service tax under Rule 6(3) for not maintaining separate cenvat credit accounts. Additionally, the invocation of the extended period of limitation by the Revenue was not justified. The impugned order was set aside, and the appeal was allowed with consequential relief.