TaxTMI 
TaxTMI 
2024 (9) TMI 922
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.... appellant has received proceeds from sale of securities, and the amount was reflected under the schedule for 'other income' in their Annual Reports. The Department was of the view that the appellant has earned profit from the activity of trading of securities. As per Rule 2 (e) of Central Credit Rules, 2004 which defines 'exempted services' from 01.04.2011 an Explanation has been added which says 'exempted services' includes 'trading'. 2. Section 66D of the Finance Act, 1944 which gives the list of services which are not subject to levy of service tax reads as follows : "The negative list shall comprise of the following services, namely -, (a) "services by Government or a local authority excluding the following services to the extent they are not covered elsewhere - ........ (e) trading of goods. ...... (q) funeral, burial, crematorium or mortuary services including transportation of the deceased." 3. Since trading of goods is listed in the 'negative list' of services, no service tax is leviable on 'trading of goods'. This implies that trading of goods continues to be an exempted service as per Rule 2 (e) of Cenvat Credit....
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....ty Share indulged by a taxpayer, is nothing but trading of 'securities'. As 'goods' include 'securities' and trading of goods is an exempted service, the activity of purchase and sale of units of Mutual Fund Schemes and Equity Shares indulged by the appellant, is an exempted service. 10. Rule 6 provides for the obligation of manufacturer or service provider. It says that cenvat credit is not allowed on input services used for providing output services. Rule 6 (1) of the Cenvat Credit Rules, 2004, reads as follows - 'The Cenvat credit shall not be allowed on such quantity of input used in or in relation to the manufacture of exempted goods or for provision of exempted services, or input service used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services, except in the circumstances mentioned in sub-rule (2).' 11. Sub-rule (2) of Rule 6 of the Cenvat Credit Rules, 2004, reads as follows - 'where a manufacturer or provider of output service avails of Cenvat credit in respect of any inputs or input services and manufactures such final products or provides such output service whic....
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.... demand has been raised on the basis of annual reports of the appellants. The extracts of the Annual Report was placed before us to submit that the appellant had invested money in securities. The appellant gets income by providing Information Technology Software Services to their clients. Such income is judiciously invested by the appellant. They are not engaged in trading of securities and have only invested in securities as permitted by the provisions of the Companies Act and the guidelines issued by SEBI. The appellant has only deposited the surplus income received by them in specified investments for the purpose of appreciation and acquisition of the value in their investment. As and when the need for any expenditure arises, the appellant liquidates these investments which is part of their treasury operations. These facilities are essential for their own investment of funds and the appellant is in no way engaged in trading of securities. The appellant company has only one portfolio which investment portfolio and does not have two separate portfolios for investment and trading. The securities are valued and held as capital assets in their books and not as stock in trading. 15....
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....ld go to show that the 'trading of goods' is considered as a 'service' under the Finance Act, 1944. Rule 2 (e) of CCR 2004 provides that trading is an exempted service. Therefore, the income received by the appellant by trading in securities is an exempted service and therefore the demand raised is legal and proper. 19. Countering the arguments put forward by the Ld. Consultant appearing for the appellant, it is submitted that the definitions contained in the Finance Act, 1994 as well as Cenvat Credit Rules, 2004 has to be interpreted literally as there is no ambiguity or room for doubt. The provisions being very clear the contention of the appellant that they have not engaged in trading of goods or exempted services is not acceptable. It is prayed that the appeal may be dismissed. 20. Heard both sides. 21. The issue that arises for consideration is whether the demand confirmed alleging that appellant has availed common input services for taxable and exempted services (amount received from mutual funds / securities) is sustainable or not. 22. From the facts narrated above, it can be seen that the appellant is investing their surplus / income in mutual funds. The entire ....
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.... have acted like any individual who would invest funds in shares / securities. The appellant is not engaged in the business of trading of shares / securities as provided under Section 105 (zzzzg) of the Act ibid. It requires to be stressed that the activity of engaging in sale and purchase of securities for another is a taxable service under Finance Act, 1994. Only a licensed person or agent can engage in doing such activity of sale and purchase of shares. The department seems to have confused purchase and sale of shares as an investment with the 'trading of goods' as a business. A manufacturer who also sells goods can be said to be engaged in trading of goods. Such manufacturer if avails common inputs / input services for manufacture of dutiable goods and for trading of goods is liable to reverse the proportionate credit as under Rule 6 (3A) or pay amount as per Rule 6 (3) (i). This is because trading is a deemed exempted service w.e.f. 01.04.2011, and no credit can be availed in respect of trading. In this scenario, trading of goods is part of the business of the manufacturer. The appellant is not engaged in the business of trading of shares. In fact it is stated that they have o....
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....ce 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 issue....
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....alem has been challenged, wherein, the Ld. Authority has confirmed the demand being 6% of the value of exempted service. ... .... ..... 12. Insofar as first issue is concerned, we find that the appellant had invested in shares/securities that were giving dividend income but, however, we fail to understand as to what was 'service' element involved in such investment. The revenue has only fastened the liability on surmises and without there being any positive findings in this regard. It was for the revenue to prove that 'investment' itself was a service, in order to demand service tax. Rather, the first appellant authority himself has at paragraph No. 14.01 observed that "... such investment would be an activity outside the definition of service, being a mere transaction in money" but, however, has concluded in the same para that activity of investment in shares and derivative trade satisfy the definition exempted services under Cenvat Credit Rules, 2004. 13. We fail to understand the logic in treating the mere 'investment' as an exempted service because, the revenue has not specifically alleged if there is any 'service' in the first place. Secondly, u....
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....made, by treating the same as 'service' although exempted and consequently, we set aside the impugned order." 27. After appreciating the facts, and following the decisions as above, we are of the considered opinion that the demand cannot sustain. The impugned order is set aside. The appeal is allowed with consequential relief, if any. (Order pronounced in the open court on 01.08.2024) ============= Document 1 COGNIZANT TECHNOLOGY SOLUTIONS INDIA PRIVATE LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2011 For the year ended 31-Mar-11 Ra. For the year ended 31-Mar-10 Re A. Cash flow from operating activities: Net profit before tax Adjustments for: Depreciation Interest Income 22,731,892,483 14,381,105,776 Income from Investment Dividends (Profity/Loss on disposal of Fixed Assets 3,722,796,755 (729,911,792) (74,579,200) 1,446,420 3,148,705,606 (503.848,147) (72,083,308) 7.319,107 Capital Gains on Investments in units Provision for doubtful debts Mutual Funds Unrealised foreign exchange (gain) noss (Gain/Loss on outstanding forward contracts 738,118,917 Provision for warran....