2021 (4) TMI 687 - AT - Service Tax

CENVAT Credit - exempted activity or not - trading in mutual funds - Commercial Training and Coaching Services - maintenance of separate records or not - extended period of limitation - HELD 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. 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 hence the Department has wrongly invoked the provisions of Rule 6(3) demanding the reversal of credit on the exempted services. Extended period of Limitation - HELD THAT - The 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 - the extended period cannot be invoked where the Revenue‟s case is based on Balance Sheet and income return and other records of the assessee. Appeal allowed - decided in favor of appellant.

Issues:
- Whether the appellant is liable to pay service tax on profit from the sale of mutual fund investments?
- Whether the appellant is engaged in trading of securities?
- Whether the appellant is required to maintain separate books of accounts for common input services used for both taxable and exempted services?
- Whether the Department correctly invoked Rule 6(3) for demanding reversal of credit on exempted services?
- Whether the substantial demand is time-barred?
- Whether the appellant suppressed any material fact from the Department?

Analysis:

1. Liability to Pay Service Tax on Profit from Sale of Mutual Fund Investments:
The appellant, engaged in Commercial Training & Coaching Services, earned profits from mutual fund investments during 2014-15, 2015-16, and 2016-17. The Department contended that the appellant's investment in mutual funds constituted trading in mutual funds, leading to the demand for payment of 6%/7% of the amount of exempted services. However, the Tribunal found that the appellant's activity did not amount to trading in securities as defined under Service Tax. The appellant's investment in mutual funds was categorized as "other income" in their books, and they were not considered service providers. Therefore, the Tribunal concluded that the appellant was not liable to pay service tax on the profit from the sale of mutual fund investments.

2. Engagement in Trading of Securities:
The Tribunal clarified that the appellant's actions did not constitute trading in securities. While the appellant earned profits from mutual fund investments, they could only redeem the units with the mutual fund itself, lacking the ability to transfer units to third parties due to the absence of a SEBI license. As trading involves selling goods for profit, the Tribunal distinguished between trading and redemption of mutual fund units. Since the appellant did not engage in trading activities as defined in the context of securities, the Tribunal dismissed the notion that the appellant was a trader in securities.

3. Requirement to Maintain Separate Books of Accounts:
The Department alleged that the appellant failed to maintain separate records for common input services used for both taxable and exempted services, leading to the invocation of Rule 6(3) for demanding credit reversal on exempted services. However, the Tribunal found that the appellant's activities did not warrant the application of Rule 6(3) as they were not providing exempted services through trading in mutual funds. Therefore, the Tribunal determined that the Department incorrectly invoked Rule 6(3) in this case.

4. Time-Barred Substantial Demand:
The appellant argued that the substantial demand was time-barred, as the show-cause notice was issued on 15/06/2018 for the period from 2014-15 to 2016-17. The Tribunal agreed with the appellant, noting that the Department's view on the appellant's activities as exempted services arose during an audit, and the appellant had regularly filed returns and provided all necessary information. As the Department's case relied on the appellant's Balance Sheet and income return, the Tribunal held that the extended period could not be invoked, and the substantial demand was time-barred.

5. Allegations of Suppression:
The appellant contended that they did not suppress any material facts from the Department, as they had consistently filed returns and cooperated during audits. Relying on various decisions, the appellant argued against the invocation of the extended period. The Tribunal concurred with the appellant, emphasizing that the appellant had not concealed any information, and hence, suppression could not be alleged. The Tribunal set aside the impugned order, allowing the appeal of the appellant.

In conclusion, the Tribunal ruled in favor of the appellant, determining that they were not liable to pay service tax on the profit from mutual fund investments, were not engaged in trading of securities, did not need to maintain separate books of accounts for common input services, and that the substantial demand was time-barred due to the lack of suppression of material facts.

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