Issue of equity shares at premium whether exempted service? (whether this activity is 'trading in securities')

[Yatin Bhopi]

Dear exeprts

We are manufacturer and public limited company. recently we have gone through excise audit.

We have securities premium account where premium received on issue of equity share is credited. i.e. for eg. if the face value of shares is ₹ 10 and if we issue to shareholder at ₹ 15, ₹ 5 is the premium received and credited to securities premium account.

Now auditors view is that, this is exempted service (trading in securities) and they are asking us to reverse the CENVAT credit according to CCR 6 (3).

Please let me know the legal position and your view in this matter.

AI Summary

Trading in securities is exempt; issuing shares at premium is not trading and does not attract service tax.
Premium received on issue of new equity shares is not treated as trading in securities and does not by itself attract service tax. Trading in securities is an exempted / negative list service, and where exempted services are rendered a manufacturer must maintain separate accounts or follow the prescribed apportionment/payment rules for exempted activities; reversal of CENVAT credit arises only if input credits relate to exempted services or accounting segregation is not maintained.