2024 (3) TMI 1350 - AT - Service Tax

CENVAT Credit - trading in Mutual Funds - failure to discharge 6% / 7% of the value under Rule 6(3) of Cenvat Credit Rules, 2004 (CCR) - non-payment of Service Tax on the amount received from employees for waiver of notice period on leaving the employment - demand alongwith interest and penalty. Whether the amount 6% or 7% on is payable on the differential value of mutual fund investment and realization under Rule 6(3)(i) of CCR, 2004 being an exempted service? - HELD THAT - This issue is no more res integra since considered in a series of judgments of this Tribunal. In Ace Creative Learning (P.) Ltd. case 2021 (4) TMI 687 - CESTAT BANGALORE , this Tribunal analyzing the provisions applicable to investment in mutual funds held '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.' - Thus, it can safely be inferred that the investment in mutual funds by the appellant cannot be considered as an activity involving exempted services nor sale/trading of exempted goods. Thus, the demand on this count cannot be sustained. Whether the amount recovered from the employees in lieu of service period on leaving the employment is leviable to Service Tax? - HELD THAT - The issue has been considered by this Tribunal in XL Health Corporation India (P.) Ltd. 2022 (5) TMI 427 - CESTAT BANGALORE where it was held that 'any compensation paid by the employee to the employer for resigning from the service without giving the requisite notice, would not be termed as consideration for the contract of employment and as such, would not fall within the preview of taxable service.' - thus, the demand of Service Tax on the charges recovered by the appellant from the employees in lieu of notice period, also cannot be sustained. The impugned order is set aside - Appeal allowed.

Summary

Issues:
1. Whether the amount of 6% or 7% on the differential value of mutual fund investment and realization under Rule 6(3)(i) of CCR, 2004 is payable as an exempted service.
2. Whether the amount recovered from employees in lieu of service period on leaving the employment is subject to Service Tax.

Analysis:
Issue 1:
The appeal challenged a demand based on the investment in mutual funds, considered by the Revenue as trading in goods, leading to a demand under Rule 6(3)(i) of CCR, 2004. The appellant argued that the investment in mutual funds did not constitute trading in goods and was not an exempted service. The Tribunal, citing various judgments, including Ace Creative Learning (P.) Ltd. and Ambuja Cement Ltd., held that the investment in mutual funds did not qualify as an exempted service or trading activity. The demand based on this count was deemed unsustainable, following established precedents.

Issue 2:
Regarding the recovery of charges from employees for not serving the notice period, the appellant contended that such recovery did not constitute a taxable service as per the employment contract. Citing XL Health Corporation India (P.) Ltd. case and other judgments, the Tribunal held that the recovery of charges in lieu of notice period did not amount to a taxable service. Relying on the principle established in prior cases, the Tribunal concluded that the demand for Service Tax on these charges could not be sustained. The impugned order was set aside, and the appeal was allowed with consequential relief, if any, as per law.