2024 (2) TMI 1086 - HC - Service Tax

Maintainability of appeal - appropriate forum - Appellant is a juridical person or not - Appellant can be treated as a trust or not - service provided to contributories or not - failure to recogniSe pass-through status, for the purpose of taxation statues - consideration received fro contributors or not - doctrine of mutuality. Maintainability of appeal - appropriate forum - HELD THAT - In this case, there is no dispute with regard to rate of duty in this case. The question is whether assessee is liable to pay the duty. Therefore appeal is maintainable before this Court. Whether the CESTAT has erred in holding the Appellant to be a juridical person? - HELD THAT - The definition clauses of each statute must be read with the object and purpose of that statute only as intended by the legislature. Various statutes such as SEBI, GST, IBC recognize trust as a person whereas the Finance Act does not. The issue involved in this case is liability to pay Service tax, therefore, the relevant statute is the Finance Act. Hence, the contention urged by Revenue is untenable. The CESTAT has recorded in the impugned order that, since the trust is treated as juridical person under SEBI, there is no reason why it should not be treated as a juridical person for taxation. This view of the CESTAT is untenable because, for the purpose of levy of tax, the entity has to be recognized under the said Act - Accordingly, the first question is answered as affirmative and in favour of the assessee. Whether the CESTAT has erred in holding that the Appellant cannot be treated as a trust and failed to recognize its pass-through status, for the purpose of taxation statues? - HELD THAT - The assessee acts as a pass through , wherein funds from contributors are consolidated and invested by the investment manager. It acts as a trustee holding the money belonging to contributors to be invested as per the advice of the investment manager - the question is answered in the affirmative and in favour of the assessee. Whether the CESTAT has erred in ignoring that the moneys and funds contributed by the Contributors, being the property of the Appellant, the asset management service, if any rendered, is by the Appellant for its own self? - HELD THAT - It is not in dispute that contributors are institutional investors. It is noted that doctrine of mutuality applies when commonality is established between the contributors and participators - In the instant case, the contributors and the trust cannot be dissected as two different entities because, it is an admitted fact that contributors investment is held in trust by the fund and it is invested as per the advice of investment manager. In substance, fund does nor do an act. Hence, can be no service to self. Therefore the doctrine of mutuality must apply in the instant case - the third question is answered as affirmative and in favour of the assessee. Appeal allowed.

Summary

Issues involved:
The judgment involves the following issues:
1. Whether the appellant can be considered a juridical person for the purpose of charging service tax?
2. Whether the appellant can be treated as a "trust" and recognized as a pass-through entity for tax purposes?
3. Whether the doctrine of mutuality applies in the case where the contributors and the trust are not considered separate entities for the levy of service tax?

Issue 1: Juridical Person Status
The appellant argued that the Finance Act does not recognize a "trust" as a person for service tax purposes, while the respondent contended that the trust, being registered under the SEBI Act, qualifies as a juridical person. The court held that the entity must be recognized under the relevant Act for tax purposes, and as the trust is not recognized as a juridical person under the Finance Act, the appellant's argument was upheld.

Issue 2: Pass-Through Entity Status
The appellant, being a venture capital trust, operates as a pass-through entity where funds from contributors are consolidated and managed by an investment manager. The court agreed that the fund does not make a profit or provide a service directly, acting as a trustee for the contributors' funds. Therefore, the imposition of service tax was deemed untenable, and the appellant's argument was upheld.

Issue 3: Doctrine of Mutuality
In this case, the doctrine of mutuality applies as there is no distinction between the contributors and the trust, with the fund holding and investing the contributors' funds as per the investment manager's advice. As the fund does not perform any independent acts, the doctrine of mutuality was found to be applicable. Hence, the court ruled in favor of the appellant on this issue.

Conclusion
The High Court allowed the appeals, set aside the CESTAT order, and answered all questions of law in favor of the appellant against the Revenue, with no costs awarded.