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TMI Blog2021 (7) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... cribers/ Investors, records that the arguments of the appellants is not acceptable as per the facts of the case which indicate that the main object of the assess is capital appreciation through the investment of contributors/ Subscribers/ Investors in the schemes devised by the appellants to gain profits/income; the motive of the fund is purely commercial; the Fund has independent identity and distinct personality of its own which is evident from the fact that the Fund is established as a Trust by ICICI Ltd. and is registered with SEBI; the Fund made investment in various companies; only a legal obligation with respect of ownership of property rests with the Fund is not true as the appellant is involved in the activity of capital invested by Contributors/ Subscribers/ Investors; the Fund also collects KYC Forms from the Contributors; therefore the Fund acts as a commercial concern. A Trust are essentially mutual funds engaged in Portfolio management etc. It could be seen that though these mutual funds are named Trusts, the essential function of the Trust was of commercial concerns that is maximizing the profit. Similarly, it is mentioned clearly in various places that the Tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants have relied on Circulars No. 94/5/2007- Service Tax dated 15.05.2007 and Circular No. 96/7/2007-ST dated 23.08.2007 which is claimed to have clarified that the entry load and exit load charged by mutual fund being for management of asset or not liable to service tax - These are huge amounts retained and distributed to the AMCs or their nominees subject to achieving certain levels of performance thus it is a variable expenditure and cannot be equated to entry or exit load. Moreover, it is found that the appellant s Trusts are managing Venture Capital Fund and not the mutual funds therefore the Circular is not applicable. Applicability of Board s Circular No. 86/04/06 - commercial concern or not - HELD THAT:- In the case at hand, it is seen that the totality of the activities and objective of the assessee is to effect capital appreciation of the investments of the consumers/ subscribers/ investors who are mentioned as customers in terms of their policies. Further, schemes are devised to generate income/ profit/ gains to the benefit of the consumer/ subscribers/ investors. Therefore, the said Circular is not applicable in the instant case. Quantification of Demand - HE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 77 is imposable. It is found that extended period is invokable; material facts have been deliberately suppressed by the appellants before the jurisdictional service tax authorities. Therefore, the imposition of penalty under Section 78 of the Finance Act, 1994 is justified. Revenue Neutrality - HELD THAT:- All the SCNs and annexures mention carried Interest to be includible in the Gross Consideration for the demand of duty. Therefore, we find that the OIO has not traversed beyond the SCN. Learned Counsel for the appellants also raised an issue that this is a standalone Show Cause Notice issued to the appellants alone, though there are many similar funds floated my others during the relevant time. All the appeals are disposed of, by way of remand to the adjudicating authority, subject to the following conditions: (i). Penalties imposed under Section 76 of Finance Act, 1994 are dropped. (ii). the adjudicating authority shall verify the following claims of the appellants, with documentary proof that may be submitted by the appellants, and give due allowance to the same, if found otherwise in order as per law, while computing the duty liability. (a). the claim tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... experienced advice, the Trustee appoints an Investment Manager or Asset Manager to manage the assets of the Appellants. The terms for appointment of the Investment Manager/ Asset Manager are contained in the Investment Management Agreement ( IMA ). The Investment Manager is responsible for managing the assets/ investments of the Appellants and receives remuneration in the form of management fees for the services rendered by it. The Department launched investigation into the taxability of the services rendered by ICICI Econet Internet and Technology Fund floated by the Settlor (ICICI Ltd.) under the entry Banking and other financial services in Sec. 65 (12) of the Finance Act, 1994. The said investigation resulted in the issue of series of notices demanding Service tax on the said activities, which were confirmed by the adjudicating authority. Aggrieved by these OIOs , the appellants are before this Bench in the following. Appeals Nos Name of the Trust/Fund, the appellant ST/2900/12, ST/22700/14 ICICI Econet Internet and Technology Fund ST/1644/12, ST/1647/12, ST/22361/14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a direct judgement in the case of State of WB v. Calcutta Club; even assuming the doctrine of mutuality does not apply for any reason, there is no Service falling under the taxable entry Banking and other financial services (BFS) for the present tax demand to be sustained; expenses incurred by Trust do not constitute consideration for services by Trust to Contributors/ Beneficiaries. 2.2. Shri Vikram Nankani further submits that carrying Interest or Carried Interest is a return on investment and not performance fee; in any case it is not a fee received by the Appellant-Trusts for liability to arise in the hands of the Appellant-Trusts (it is the recipients of such income who need to evaluate tax liability if any with respect to the same); notwithstanding the above, service tax (if any) needs to be calculated on the amount received as including service tax; the extended period of limitation is not applicable and as a consequence, for the periods in question, normal period limitation also fails; demand is not sustainable since Cenvat Credit is available of the service tax paid on the services received by the Trust; no tax liability can be fastened on provisions made fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, a Trust is an arrangement whereby property is held by a person (the Trustee ) for the benefit of specific people (the Beneficiaries ) or for some object permitted in law. The property is held by a Trustee by virtue of confidence reposed/ declared in him and his abilities to achieve the objects of the Trust. The person who declares the confidence is called the Author of the Trust (or the Settler ). 3.1. The senior Counsel submits that the Appellants are Venture Capital Funds that work on a high-risk model by investing in nascent companies professing pioneering and innovative technology and skills. Venture Capital investments are generally done in a pooled or collective format, such that several investors combine their investments into one large corpus that invests in many companies. The Appellants are therefore a pooled vehicle of investments or funds contributed by the Contributing Investors who are the Beneficiaries of the Trust. The extent of power including manner of usage of the funds pooled are in pre-determined and articulated in the various documents associated with the Trust and agreed to by the parties. The Trust is represented by a Trustee and can sue or be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period under dispute did not confer any liability on juristic persons; the inclusion of trusts as a person/ juristic person under the service tax law/ goods and service tax law was incorporated in the legislation much after the periods under dispute; Pertinently, in the case above, the Trustee was proceeded against and not just the Trust as provided for under law; whereas, the present proceedings fail on grounds of the Trustee (who alone can sue and be sued for the actions of a Trust) has not been made a party to the proceedings rendering the entire proceedings invalid; further, the Respondent has completely disregarded the fact that the dispute in the case of Abraham Memorial Education Trust was with respect to a transaction between the trust and a third party (and not the beneficiaries of the trust). Hence, the issue in this case was not of any alleged transaction between the trust and its beneficiaries, as is the issue in the instant appeals. Therefore, the said ruling of Abraham Memorial Education Trust is not relevant to the instant appeals which are protected by the doctrine of mutuality of interest. Further, while deciding the above, the Hon ble Single Judge heavily r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded with effect from effective 1 July 2012 in the Act, and even at that stage, the said term did not include a Trust . Accordingly, during the period under dispute, any demand of service tax on Trusts would fail simply on grounds that Trust is not recognized as a person, much less a person liable to tax under the Act. 6.1. Learned senior Counsel submits that under the Income tax Act, 1961 (the IT Act ) as well, the term, person does not include trusts. Notwithstanding this, provisions in the IT Act pertaining to taxation of Trusts have been formulated keeping in mind the representative capacity in which Trusts/ Trustees operate for and on behalf of the Beneficiaries. Trustees of a private trust are treated as the Representative Assesses for assessment of private trusts as per Section 160 (2) of the IT Act. Further, basis a conjoint reading of Section 161 and 166 of the IT Act leads to an unequivocal conclusion that, unlike companies, which are taxed as separate legal entities under the IT Act, taxation of Trusts is typically done in the hands of the Trustee (Trustee), who is the Representative Assessee on behalf of Beneficiaries or directly in the hands of the person repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax registration and are therefore liable for service tax on the disputed demands is misguided and incorrect; the detail of service tax registration obtained by each of the Appellants including the rationale for the same have been explained in Para 9 of the Rejoinder submitted on 18 December 2020; many of the Funds obtained service tax registration under protest with a view to reserve their right to avail CENVAT credit in terms of Rule 3 of CENVAT Credit Rules, 2004 ( CCR ), having regard to the timeline brought in for availment of CENVAT vide Notification No. 21/2004-CE(NT) dated 11 July 2014; the Appellants had availed/reserved their right to avail CENVAT credit under protest merely to ensure and protect the Funds right to CENVAT credit in the event of confirmation of service tax liability pending in these appeals; respondent has failed to appreciate the fact that merely obtaining registration under the Act, as mandated by law, or qua transactions with third parties on a conservative basis, cannot consequently lead to fastening of liability to pay service tax to the Government on notional services assumed or presumed by the Department; Respondent has erred in assuming that obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded and estopped from saying that they are not the assessee and whether they are liable to pay the electricity duty to the State Government directly or the State Authorities through its Commercial Tax Department who is the in-charge for recovery of electricity duty. 63. In view of the above, it is held that: (III) The petitioner Companies are neither licensees nor assessees but obtained the registration under the Chapter-II of the Bihar Electricity Duty Rules, 1949. Their registration is of no use. They may have obtained the registration under misconception of law or wrong advice but that will not make them the assessee registered under the Rules of 1949; 7.4. He submits that therefore, the contention of the respondents that the Appellants is registered under the provisions of service tax laws, and hence is a legal entity liable to pay service tax, is not sustainable; the contention of the Respondent that the Appellants have obtained service tax registration for payment of service tax and availment of CENVAT credit, does not take away the fact that the Appellants are not a separate entity qua the Contributors. Therefore, the fact that the Appellants had taken serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest, Learned Senior Counsel says that there is no service provider - service recipient relationship between the Appellants and the Contributors; the fundamental requirement for levy of service tax is that service should be provided by a service provider and received by a service recipient; therefore, even assuming for the sake of an argument, without conceding, that the Appellants qualify to be an assessee or person liable to service tax, such levy shall stand negated on applying the principles of mutuality of interest ; he submits that the doctrine of mutuality is a well-recognised and well accepted doctrine in the area of taxation; this doctrine essentially states that when persons contribute to a common fund in pursuance of a scheme for their mutual benefit, having no dealings or relations with any outside body, they cannot be said to have traded or made profit from such mutual undertaking, since there is no distinction in identity between the mutual undertaking and the persons contributing to it. He relies upon the following. (i). state of West Bengal Vs Calcutta Club Limited Chief Commissioner of Central Excise and Service Vs Ranchi Club Ltd 2019-VIL-34-SC-ST. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f mutuality has been violated by way of exposure to commercial investing and profit generating operations; in doing so, the Respondent has failed to consider the fact that the aforesaid ruling was in context of interest earned qua banks or third parties, whereas the present case is with respect to monies spent on behalf of and returned to contributors. Even as per the Supreme Court ruling above, qua contributors, there is complete mutuality of interest and consequent non taxability; the Respondent failed to note that the relied upon case was in respect of applicability of doctrine of mutuality on the interest income earned on fixed deposits made with banks; in that backdrop, the Hon ble Supreme Court held that in such a case, the doctrine of mutuality would not be applicable, and the interest earned from bank deposits would be liable to income tax (however fees or consideration received from the members of the club shall stand governed by the principle of mutuality); in the present case, there is no such income earned making this case stronger for relief; mere generation of income from investment in portfolio companies could not be construed as violation of mutuality in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of s club membership, rights are issued to different classes of members who pay differential fees in exchange of differential access to amenities and privileges. 8.4. Shri Nankani submits that the respondent has stated that the AMC has been given status of special contributors and accorded undue high returns and that as per Section 17 of the Trusts Act; trustee is bound to be impartial. He submits that impartiality is not equality of treatment but means that a trustee's treatment of beneficiaries or conduct in administering a trust is not to be influenced by the trustee's personal favoritism or animosity toward individual beneficiaries, even if the latter results from antagonism that sometimes arises in the course of administration; Nor is it permissible for a trustee to ignore the interests of some beneficiaries merely as a result of oversight or neglect, or because a beneficiary has more access to the trustee or is more aggressive; therefore, in short, it is the trustee's duty, reasonably and without personal bias, to seek to ascertain and to give effect to the rights and priorities of the various beneficiaries or purposes as expressed or implied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting) Private Limited v CIT 2020 SCC On Line SC 388 should not be relied in the instant case, In case of Yum! Restaurants (Supra), the appellant company was incorporated by YRIPL as its fully owned subsidiary for the purpose of economisation of the cost of advertising and promotion of the franchises as per their needs; essential requirement that of the contributors to the common fund are either to participate in the surplus or they are beneficiaries of the contribution is missing; through the common AMP activities no benefit accrues to Pepsi Food Ltd. or YRIPL; accordingly the principles of mutuality cannot be applied. Apex Court clearly stated (Para 16) that Whereas the legal position on what amounts to a mutual concern stands fairly settled, the factual determination of the same on a case to case basis poses a complex issue that requires deeper examination. Such examination ought to be conducted in the light of the tests enunciated above. Significantly, the judgement in Calcutta Club is not even referred to in M/s Yum Restaurant s case. The judgement in Calcutta Club being directly on the point in relation to the same provisions of service tax, and that too for the same period, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and receive a return as laid down in the various documents; as per above judgment, doctrine of mutuality does not mean equality in treatment; it merely means that there should be a complete identity between the participants and contributors and the contributors should have right of disposal over the surplus; accordingly, the entire presumption that certain class of unit holders enjoy specific privileges and incremental returns despite joining at the last minute is unfounded and called for. 8.8. Shri Nankani further avers that the relationship between the Appellants and the Contributors is akin to the relationship between a Company and its shareholders; understanding in the impugned orders that the Contributors are only subscribers to schemes floated by the Appellants, and are not a part of the Appellants unlike shareholders, is fallacious. He submits that the promoters of the company are similar to a settler of a Trust; the Trustees manage the affairs of the Appellants, just as Board of Directors manage the affairs of a company; courts have often compared Directors of a company to Trustees since they have a strict fiduciary obligation thereby preventing them from profiting f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the corpus and not to receive asset management services from the Trust. Submissions- whether expenses incurred- Carry Interest and performance fee amount to consideration for a service- whether tax liability arises 11. The senior counsel submits that no consideration under the alleged activities charged by the Appellants from the Contributors; as per Explanation (a) to section 67 of the Finance Act, consideration, for service tax purposes, should be an amount payable for provision of services. As per Section 2(d) of the Indian Contract Act, 1872, When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise . As per Black's Law Dictionary Consideration is not to be confounded with motive, consideration means something which is of value in the eye of the law, moving from the plaintiff, either of benefit to the plaintiff or of detriment to the defendant. In the instant case neither the Appellants nor the Contributors have any intention to treat the expenses as conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir capacity as recipient of services corresponding to the expenses. 11.2. Shri Vikram Nankani submits that for service tax to apply consideration should be received by a taxable person with respect to a taxable service ; gleaning through the provisions of service tax during the relevant period, he submits that levy of service tax on banking and other financial services is on a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern ; A Trust does not have any such general legal identity. In fact even the Department has conceded that the Trust shall not qualify as a banking company or a financial institution, non-banking financial company or any other body corporate; Appellants do not engage in any business or trade themselves, and merely invests the contributions received from its Contributors; Appellants do not retain any amounts as income for providing services, and act as a pass through with respect to expenses incurred in relation to investment activities; Appellants do not have any intention of earning a profit for itself as they are only a pooled investment vehicle; Contributors do not hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as amounts retained by the Appellants from the Contributors for providing any services to the Contributors; out of the total amount of INR 28,51,49,62,689 treated as consideration received by the Appellants in the Impugned Orders, an amount of INR 12,37,36,99,793, is towards these accounting entries, which should clearly be excluded from the amounts under dispute, as these cannot be treated as amounts retained by the Appellants for providing services to the Contributors; unless there is an actual flow of consideration for an agreed service, no service tax liability can arise. 11.5. The learned Senior Counsel submits that Revenue entirely alleges that the Appellants retain amounts distributable to class B/ C unit holders; it was submitted in their written arguments and rejoinders that the carried interest paid as return on investments (Class B/C units) to the AMC or its affiliates is a performance fee paid to the AMC ; it was alleged that in the case the returns on Class B/C units had been paid in form of performance fee, the same would have been reflected as part of expense in the hands of the Fund(s). Learned senior counsel submits that this contention is not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged applicable service tax on the performance fee received from the fund; hence, the said performance fee has already been subjected to service tax in the hands of AMC. (iii). the income from investments has been inadvertently shown as performance fee in the AMC s director s report for FY 2007-08 in respect of India Advantage Fund - Series 1 (IAF Series 1);it was shown that they earned ₹ 578.6 million as performance fee; subsequently it was rectified in the AMC s director s report for financial year 2008-09. He submits that as can be seen from above, the amount alleged by the Respondent to be in nature of performance fee, is in fact, in the nature of income from investment in venture capital fund, which is not liable to service tax. 11.7. The learned Senior Counsel submits that Carry Interest is paid to Class B/C unit holders in return of the investment made by them; it is only in case of those Funds where the AMC also makes an investment in the Fund as a contributor, that the AMC also receives a return on investment which is colloquially called the Carry Interest; the mere fact that AMC is also a Contributor cannot be confused to equate Carry Interest to performanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants exercised bona fide belief that Trusts are not specifically included in the list of such institutions/ entities for banking and other financial services ; it was clarified by CBEC vide Circular No 94/05/2007-ST dated May 15, 2007 that entry load and exit load charged by the mutual funds from investors shall not be liable for payment of service tax under fund management services (banking and financial services).; as evident from the circular, expenses retained by a Fund are not liable to tax; the artificial distinction sought to be made by the Respondent on entry/ exit load covered in the above Circular and expenses incurred by the Funds is neither supported by law or fact; therefore, no suppression much less any wilful suppression can be alleged; there is no dispute that the issue is interpretative in nature; no similar demands have been raised by the Revenue on any other Fund; extended period of limitation has been invoked mechanically, It is a settled principle that extended period cannot be invoked in case of interpretational issues. Reliance is placed on ruling in case of Saint Gobain Glass India Ltd Vs CCE ST LTU, Chennai 2016 (9) TMI 368 - CESTAT CHENNAI. He also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy of penalty; as the Appellants believes that it does not provide taxable services, there is no requirement to file returns and hence no penalty can be levied. He submits that Section 78 of the Finance Act provides for penalty for suppressing the value of taxable service, where any person has not paid service tax due to suppression of value of taxable service with intent to evade service tax; in the instant case the appellants had no intent to evade service tax as due to the definition of banking and other financial services and circulars issued by the CBEC clearly state that the intention of the government is not to levy service tax on such amounts retained by the Appellants; the Appellant does not function with any profit motive; Trust Deed clearly states that the Appellants shall not engage in any trade or business; intention to evade service tax can exist only in a situation where the Appellants stands to benefit from such evasion; no such benefit is foreseeable in the appellants case; as it is only a pass through and does not retain any amounts from amounts invested by the Contributors; most of the expenses sought to be covered under the proposed demand have already suffer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lan Tent Palace -2001 (131) ELT 274 (CEGAT Delhi)-Para 2 (v). CCE Vs AB International- 2007-TIOL-1561-CESTAT-MUM (Mumbai CESTAT) Para 3 Submissions on Revenue Neutrality 17. Shri Vikram Nankani submits that the issue is Revenue neutral as the Appellant is also eligible to claim CENVAT Credit of the Service tax paid on input services in terms of Rule 3 of the CENVAT Credit Rules, 2004 read with Rule 2(1) thereof; the expenditure incurred by the Appellants as shown in the Revenue Account discloses actual expenses incurred by the Appellants and the accounting provisions created by the Appellants. He submits a chart showing duty demanded, allowance for write off on the loss of sale of investments and class B/C, actual demand, service tax available etc and submits that Total demand is ₹ 3,21,24,64,061, actual demand after allowing the wrong figures taken by department/losses would be ₹ 1,31,74,18,678 and CENVAT availability would be ₹ 1,29,57,64,253 which is 98 percent of the demand; principle of allowing the demand to be paid net of CENVAT credit that is otherwise eligible has been expressly recognized in the interim order passed by this Hon ble Bench; he al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement duties from the Trustee representing the Fund for the benefit of the Contributor /Subscriber /Investor (collectively referred to as Investors ) through the IMA executed on 2nd April 2001; any/all duties responsibilities/ powers of the AMC are primarily that of the IEF; a Contribution Agreement (CA) is also entered into with each investor and The Private Placement Memorandum (PPM) prepared by the Fund, as required under the relevant SEBI Regulations, apprising the intending Investors of the details of the Fund. Submissions by Shri P.R. V. Ramanan, Special Counsel for Revenue 20. Shri PRV Ramanan, Special Counsel, appearing for the respondents i.e the department submitted two paper books, one containing the Written Submissions with Annexures, I, II and III and another containing 25 Exhibits; copy of the VCF Regulations 1996, Exhibits 25A, 26 and 27 and a case law compilation of 4 judgments. Learned Special Counsel gives brief details of the Funds, including break-up of tax demands, covering the period from 2005-2006 to 2011-2012, in respect of 31 Appeals, for each of the 11 Funds i.e. Appellants. He gives brief introduction of the issue involved and states that var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distributing the proceeds received by way of dividends or interest on loans. The impugned funds- legal implications as Venture Capital Fund 21. 21. Shri PRV Ramanan submits that these Funds are registered under VCF Regulations, 1996 issued under the SEBI Act, 1992; Section 11(2) (c); Section 12 (1-B) of the said Act provides for mandatory registering of and regulation of VCFs.; Regulation (2) (k) defines that trust means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under an Act of Parliament or State Legislature; since all the 11 funds are registered under VCF Regulations and are bound by the provisions of the same, and the said provisions are enacted under the SEBI Act, particularly in terms of section 11(2) (c) and section 12(1-B) of the said Act, these VCFs are to be taken as established under an Act of Parliament viz. SEBI Act, 1992; Regulation (2) (m) defines that VCF means a fund established in the form of a trust or a company including a body corporate and registered under VCF Regulations; no distinction is made between the 3 entities specified therein and are juridical persons and hence they ought not to be regarded as distinct for tax p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trustee shall not be deemed to be curtailed, restricted or otherwise limited by, under or in pursuance of the provisions of section 20 or any other provision of the Indian Trusts Act, 1882, in regard to investment of trust monies; thus, a VCF is a trust only in form not in content; a VCF is not a mere obligation but a legal entity, with its own rights and duties; the exclusion sought from the Indian Trusts Act and the resultant deviation is not limited to section 20 alone. By setting up a special class of investors and providing them with privileges adverse to the regular Class A investors; provisions of Section 14 and specially, Section 17 of the Act which requires the trustees to be impartial stand violated; it is apparent that ICICI VCFs have taken refuge under the Indian Trusts Act only to cover up the tax evasion unearthed by the Revenue. VCF established in the form of a trust with all 11 VCFs is not an amorphous entity 22. Shri PRV Ramanan submits that ICICI VCFs are governed by the SEBI Act and Regulations; as no VCF can function without registration under the said Regulations, the Regulations would prevail over the general law on trusts as per the Indian Trusts A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to hold; it also availed CENVAT credit of ₹ 17.04 Cr. to be used on taxable services provided by Trust/Fund, during the period from 4/2015 to 9/2015 IEIT; The Fund/Trust has a bank account, prepares profit and loss accounts, files balance sheet, deduct TDS wherever applicable, obtain approvals and registration from SEBI. The Fund has, even before the date of its formation /inception allowed invoices to be raised on it by various service providers (including service tax value) and has duly paid the same; Fund, which qualifies as a legal entity or person for having received such services, is not right in making a claim that it is an amorphous entity. The Fund has an experienced auditor who has raised an invoice INL0200012303 dated 30.1.2008; the Auditor has deemed it correct to charge service tax on ₹ 27.50 which is merely a recovery of expenses and was paid; M/s BMR Associates the legal consultants to the Appellants have similarly raised invoices on the Funds indicating the S tax payable by the Fund. 22.3. Learned Special Counsel in addition submits that clarifications were sought on whether a trust or a trustee representing a trust in the case of Real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ex. 3A (Page-1 India Advantage Fund V) and Ex.3 B (India Emerging Sectors Fund -pages 1 2) also have similar provisions. Statements (Exhibit- 4, 5, 6, and7) of IVEN s Senior Vice-President, Finance, Shri Jayatheertha, also show that the Fund represented by the trustee is the primary fund manager and the primary service provider of taxable services, with the Asset management company being only a sub- delegate of the Fund. 23.1. Learned Special Counsel also submits that the Econet Fund is fully responsible for holding, and using for gain, the assets of the investors during the lifetime of the Scheme, for financing which the funds have been contributed by the latter; this fact emerges out clearly from the PPM; under Fees and Expenses therein, it is stated that the Fund, (i) will pay the AMC an annual management fee of two and half percent of the aggregate capital commitments of the Fund.; (ii) will be responsible for all other costs and expenses associated with the organization, establishment and offering of the Fund , and will bear all costs and expenses that are incurred in the operation of the Fund, including Trustee fees, regulatory fees, custodial charges, brokera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m property , as defined and contemplated by Indian laws, judicial interpretations; in the instant case, the investor has the right to get beneficial interest from the Units purchased from or issued to him by the Fund; this calls for performance of activities from the Fund; the Fund is, therefore, bound by the IOT to perform to the benefit of the investors; this is done by them by appropriate asset management services; thus, the service of asset/ fund management to the investors contributions is primarily rendered by the Fund; in the course of such management they engage the services of the AMC, the Trustee and several other professional service providers; no direct payment is made by the investors to the aforesaid service providers; in sum, the service rendered is Fund /Asset management , the service provider is the Fund and the service recipient is the investor; Providing a facility to a person is a form of providing service. Going by the activities of the Fund it is clear that it provides a service which is akin to the service provided by a banking company or a financial institution to its customers. Providing a facility to a person is a form of providing service. Going ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it comes to investment policies and decisions of the Fund; the Trustee and the AMC s decisions are final in all key matters. Given this position, it would be a misnomer to say that the Fund and the investors are one and the same. 24.2. Learned Special Counsel submits also that articles 6.4 and 6.5 of the IOT relating to India Advantage Fund-I (Ex.- 26 - page 269 and 270) sets out the provisions relating to proceeds distributable to contributors/investors w.r.t the Fund investments; it is envisaged that out of CI, C class unit holders may allocate up to a max of 30% of such CI for any person nominated by the Investment Manager; all the balance CI will be deemed to accrue to ICICI Bank, one of the Contributors who may agree to share a portion of the balance CI accruing to itself with the holders of Class A unit holders; thus, C Class unit holders and ICICI bank are differentiated from other Investors by providing privileged treatment in the matter of distribution of proceeds; this is totally repugnant to the concept of mutuality. 24.3. Learned Special Counsel submits further that the claim of mutuality between the Fund and contributor or investor does not stand in the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court has laid down three conditions (i) there must be a complete identity between the contributors and participators (ii). the actions of the participators and contributors must be in furtherance of the mandate of the association and (iii). there must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. He submits that in the case of the Funds which have filed the present appeals none of the three conditions are met for the Fund to claim the consideration received by it as exempt from income due to services provided on principal of mutuality; the Service Tax from such an income arising out of a taxable service is, hence, not exempt from tax; the arrangement lacks complete identity between the investor and the Fund; till the stage of generation of surplus funds (profits), the setup resembled that of mutuality; the flow of money, to and fro, would have been maintained within the closed circuit formed by the Fund and the contributor/ subscriber/investor, and to that extent, nobody who was not privy to this mutuality, benefited from the arrangement; however, as soon as these funds were placed in various inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments for the investor is to be considered along with the fact that the Fund is a trust under Indian Trusts Act; the mandate is incomplete by just generating profits without distribution of generated profits/surplus; the Fund being a Trust under Indian Trusts Act, such distribution has to be impartial, in line with the Act, for the completion of mandate; however in this case, the AMC and its employees/consultants have been given the status of a special contributor and have been accorded unduly high returns categorized as investment returns at the cost of other contributors; the irony is that such so-called investment returns are itself being accepted as performance fee in its annual reports; the Fund cannot claim its activity as that of furthering the mandate of the venture Fund in the light of unequal treatment of its majority Investors (Class A Unit investors) by benefitting the minority investors (Class B unit holders); this is to conceal the operative expenses of the Fund as return to investors; therefore, the second condition of the principle of mutuality as held by the Hon ble SC is also violated in this case. 24.7. Learned Special Counsel submits that thirdly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns were placed in various investments as also loans, the closed flow of funds between the Fund and the investor suffered from deflections due to exposure to commercial investing and profit generating operations and secondly the contributions were expended on third parties, who benefited from the VCF activity of the Funds without any contribution to the Trust funds. The commonality of identity between contributors and participators got impaired when the third- party investee companies derived benefits without being contributors at the first instance. 25.2. Learned Special Counsel submits that the mandate is incomplete by just generating profits without distribution of generated profits/surplus; the Fund being in the form of a Trust under Indian Trusts Act, such distribution has to be impartial, in line with section 17 of the Act, for the completion of mandate; in this case, the AMC and its employees/consultants have been given the status of a special investor and have been accorded unduly large returns categorized as investment returns at the cost of other contributors; the irony is that such so-called investment returns are itself being accepted as performance fee in its annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o between the Trustee and the AMC for this purpose; a PPM is prepared outlining the features of the Scheme; based on the PPM, contributions are sought from intending Investors; due diligence checks are exercised before acceptance of contributions; the monies so collected are invested in companies and like entities in terms of the IOT and the IMA; on conclusion of the Scheme, by redeeming the Units, income generated through investments is distributed to the investors based on a formula after setting off certain expenses; VCFs may be close or open ended. 26.1. Learned Special Counsel submits that a conjoint reading of the IOT, IMA, CA and the PPM shows that the activities of the Fund reflect a systematic process and an organized and regular business of accepting monies from investors, using the same for making profits /gains by re- investing in portfolios or extending loans and distributing the proceeds received by way of dividends or interest on loans among investors and retaining some portion of the same in consideration of the facility of asset management services provided to the investors; the Fund is fully responsible for holding, and using for gain, the assets of the invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y-owned or governmentally-owned, including any corporation, trust, partnership, joint venture, sole proprietorship or association; the subject Funds, which are VCFs, are given a distinct legal identity under SEBI (Venture Capital Fund) Regulations, 1996 and is authorized by law with duties and rights; hence, the Funds herein are squarely covered under the definition of person vide section 65B (37) of the FA, 1994; funds clearly get covered under the description, asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust service; asset management services provided by them to the investors who contributed towards Trust funds of these VCFs, are squarely covered under the description of Banking and other Financial services and are exigible to S Tax. Sl. No Item Amount (Rs in Cr) (a) Amount of expenses in respect of all 11 Funds 2410.39 (b) Amount of S Tax demanded on (a) above 266.48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the services rendered by the Fund to the investors. 27.2. Learned Special Counsel submits also that the he Appellants claim that the funds distributable to the investors held back by the Fund do not constitute the value of the taxable service is not in conformity with the Service Tax (Determination of Value) Rules, 2006; explanation to Section 67, includes any amount payable for deriving the valuation of taxable services; explanation states that consideration includes any amount that is payable for the taxable services provided or to be provided and (c) gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called Suspense account or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any; 27.3. Learned Special Counsel submits further that in terms of the provisions of Rule 1 and 2 read with Rule 5 of Service Tax Determination of Value Rules, all and any expenses incurred by the trust/fund dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profitable exits during a given year; which means it is a profit sharing mechanism , which defines carried interest; it clearly indicates that the profit sharing is 20% of the net realizations (sale value of portfolio investments ); perusal of Exhibit 14 pages 1 2, reveals that the 20 percent sharing to the special class unit holders (Class B unit holders ) happens even when the capital contribution from these unit holders are only 0.0003 percent to the total capital committed for investment; this is only because of the performance related incentive for being associated with managing the Fund; it can be seen from the IOT, IMA and PPM, the fact that class B unit holders are investment manager and its employees or any trust set up for the benefit of employees, or such other person as the investment manager may in its own discretion appoint; it is important to note that the term Appointment is used for the class B unit holders; in respect of 10 out of the 11Funds, the amounts as CI have flown back to the Settlor and his nominees. 28.1. Learned Special Counsel submits further that by way of CI large amounts are paid disproportionate to their investment, showing the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 67.50 Cr. by 2005-2006 and had added a further investment of ₹ 37.50 Cr by August 2006; total amount invested by LIC was, thus ₹ 105 Cr; a sum of ₹ 58.81 Cr was redeemed and retuned against on 28/3/2008; LIC was paid from profits and gains a sum of ₹ 152.33 Cr up to 31/3/2008 and ₹ 15.76 Cr. by 22/3/2010; thus LIC received on redemption of units valued at amount of ₹ 58.81 Cr and a surplus of ₹ 168.09 Cr. i.e. 2.86 times the investment. He submits that thus, in the case of India Advantage Fund I, two C class investors, namely, India Advantage Fund I II and the AMC earned a whopping return of 1356 times their investment without redemption of units, while a major A class investor like LIC received, upon redemption of units worth ₹ 58.81 Cr., a return of 2.86 times the investment; the contrast is too glaring to be ignored. He submits that IOT, IMA and PPM clearly highlight the fact that class B unit holders are investment manager and its employees or any trust set up for the benefit of employees, or such other person as the investment manager may in its own discretion appoint; it is important to note that the term Appointm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ociates) in case of their termination; it also mentions either transfer or re-allotment of the same units to the new asset managers and their designated partners on appointment. This is a common feature in all Funds and clearly highlights the performance related and incentive nature of the Class B units (special units). No Class A (regular class of units) will be subjected to this treatment (forced redemption) after the initial investment. This highlights the fact that the special class of units called Class B units are for the service providing AMC and in specific terms for the current AMC providing management services. It also underlines the facts that the gains made by the Class B unit holders are in lieu of their services which will be stopped when their services are terminated and the same allotted to the new service provider. 28.5. Learned Special Counsel submits that Ex.-21 clearly highlights the fact that the amount earmarked as CI (performance related incentive) in the Class B units is held under Escrow and only credited into the Class B units upon achieving capital return along with the preferred rate of return for the regular investors (Class A); if it was a gain o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs; the provisions reflected in Ex.-22, is very important in understanding the concept of CI, its performance related incentivization nature and how the AMC distributes the carried interest among its employees; it states that The Board of directors of ICICI Venture Funds Management Company Ltd. at its meeting held on October 30, 2002 approved a carry plan for its employees; the carry plan envisages that the said Company will arrange to directly pay carry from the performance fee earned by it from its Funds to its employees through a special trust created for the purpose in the following manner ; it is crystal clear, therefore, that CI which is paid out to the AMC and its affiliates, thus deducting the CI from the income of the Fund which is otherwise distributable to the common investors/unit holders (Class A in the case of Econet Fund) is nothing but a performance related payment or fee camouflaged as return on investment. 28.7. Learned Special Counsel submits that the Fund deducts a significant portion of the investors funds, pays it to the AMC and its affiliates in an alternate form, so designed, such that neither the Fund /Trust nor the AMC and its affiliates have to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned/proper officer of the S Tax department and made a true declaration of the material particulars; further, no evidence of diligent conduct has been adduced to substantiate bona fide belief on the part of the said Funds or its Trustees. He relies upon the case of Kala Sagar Vs CST Tax, Mumbai [2015(138) STR 1015 (T-Mum]. 29.1. Learned Special Counsel submits that the Econet Fund began in year 2000 with a Trust fund of ₹ 100 crores contributed by two investors (Ex-23 and Ex- 25A); a new class of investment was allowed to become a part of the fund with 10,000 units of ₹ 100 each, thus investing ₹ 10 Lakhs; the investor ICICI ECONET CARRIED INTEREST FUND made an investment of ₹ 10,00,000 in 2005-06 but had only a cash or cash equivalent of ₹ 7,96,30,647 as on 31st March 2005; there was no need for Econet Fund to have a cash investment/contribution of ₹ 10 Lakhs in a ₹ 100 Cr fund, from the point of requirement of funds; it is clear that this arrangement was put in place to divert a portion of the profits/gains to the AMC and its nominees as income from investments; it is also important to note that while a single distribution has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 2 of the same annual report the same amount of ₹ 53.70 Crores is shown as performance fees earned by the ICICI Venture Fund Management Company; this astronomical return is earned by the AMC for these 5,000 units, while the normal unit holders in the same fund earn ₹ 1611 Crores for 1090 crore units; IVEN, in its filing to Security Exchange Commission (SEC) USA [Ex.-22] has highlighted the performance nature of the fees earned through a special trust formed to itself and its employees; such special trusts are the privileged class of unit holders earning astronomical returns over that of normal investors, disguising the same as income from investments of these special trusts called carried interest trusts. 29.4. Learned Special Counsel submits that had the Trust paid this as performance fee , the same would have been reflected as part of expenses of the fund in the Fund s balance sheet; being the service provider of taxable services to the investors and expenses being integral to the offering of the taxable services, these so called expenses would have to suffer service tax; the Trustee has cleverly disguised this as a return on investment from venture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed; under section 76 penalty is imposable for default in payment of service tax and mens rea is not required to be proved and mere contravention of statutory provisions would suffice; as per discussion above, there are sufficient grounds to hold that the conduct of the subject 11 ICICI Funds and the Trustees representing the said Funds was clearly not above board; there was suppression of the material facts and non-declaration of the same to the Department with intention to evade due S Tax; he relis upon Gujarat Travancore Agency Vs Commissioner of Income -tax: [1989] 177 ITR 455 (SC) AIR 1989 SC 1767 and Chairman, SEBI Vs Sriram Mutual Fund : [2006] 131 Comp Cas 591 (SC) : ([2006] TIOL 72 SC SEBI). He submits that Honourable High Court of Kerala in the case of Assistant Commissioner of Central Excise Vs V. Krishna Poduval [2006] 3 VST 21 (Ker) [2006] 1 SIR 185 (Ker) held that penalties under both sections 76 and 78 can be imposed as the incidence of imposition of penalty are distinct and separate under the two provisions and even if offences are committed in the course of same transaction or arise out of the same act, penalty would be imposable; thus, for the period prior to May 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iently managing the monies/funds invested by the latter and in this process engage the services of the AMC, Custodians, Legal and other consultants etc; they are, thus, the principal service providers to investors in the Schemes floated by them; these 11 Funds did not disclose the fact of providing the said services to the department and had suppressed the fact of making performance based payments called Carried Interest to privileged special Class of unit holders and showed the same to be return on investment to evade tax; hence, the invoking of extended period of limitation for arriving at the tax demand for certain periods stands justified and penalties under section 78 of FA, 1994 also stand justified as a sequel. Demands within normal period of limitation are also just and proper. 33. Heard both sides and perused the records of the case. Issues that require consideration in the instant case are as follows: (i) Does the doctrine of mutuality of interest exist between the trust and the contributors/beneficiaries. (ii) Is there any service, classifiable under banking and other financial services (BOFS), in terms of Section 65(105)(zm) of the Finance Act, 1994 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal entity, all the trustees should be joined if a legal action is initiated against a trust. This view is taken by a Full Bench of the Gujarat High Court, reported in AIR 1978 Guj. 113, Atmaram Ranchhodbhai v. Gulamhussain Gulam Mohiyaddin. Same view is also taken by this Court in a decision reported in AIR 1998 Bom 373, Venkatesh Iyer v. Bombay Hospital Trust. The suit is also not maintainable for want of notice under Section 164 of the Maharashtra Co- operative Societies Act. The notice is mandatory which is clear from the provisions of Section 164 of the M. C. S. Act. This is laid down by the Division of this Court in the judgment reported in 1987 Mah.L.J. 503. Mohan Meakin Ltd. v. The Pravara Sahakari Sakhar Karkhana Ltd. and in head note (b) the Court has held: that the defendant was a society which was carrying on the business of manufacturing Alcoholic products viz. Whisky and that being the business of the Society it was clear that the provisions of Section 164 of the Maharashtra Co- operative Societies Act were attracted. One of the objects of the society in addition to manufacture of sugar was the manufacture of complementary products and in that behalf to erect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cutive trustee and two more other individuals are to be appointed by the settlor in its discretion [Article 7(3)]. 19. It is true that a trust registered under the Trusts Act not being a separate legal entity, has to act through its trustees and to that extent the Canara Bank may be justified in contending that it is acting on behalf of the mutual fund in that capacity, and, strictly speaking the Trust by itself may not be a public sector enterprise but in the present case, having perused some of the Articles of the Deed of trust, in particular the one noticed above, I feel that Canara Bank has a pervasive control on the mutual fund. It is the Canara Bank as settlor and principal trustee and its other functionaries who are in effective control of the mutual fund and that being so the Canara Bank cannot be heard to say that affairs of the trust may not fall within the domain of the High Powered Committee and further its transactions with the appellants have no connection whatsoever with transactions between the appellants and Canfina, a subsidiary of Canara Bank. 34.3. Hon ble Bombay High Court in the case of Venkatesh Iyer Vs Bombay Hospital Trust and Others MANU/MH/0198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords, as an instrument obedient to their mandate; and (3) the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. 12. We will consider each of these conditions in detail before proceeding to the facts of the case. The first condition requires that there must be a complete identity between the contributors and participators. This was first laid down by Lord Macmillan in Municipal Mutual Insurance Ltd. Vs Hills [7] wherein he observed: The cardinal requirement is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund; in other words, there must be complete identity between the contributors and the participators. 13. On this aspect of the doctrine, especially with regard to the non- members, Halsbury s Laws of England, 4th Edition, Reissue, Vol. 23, Paras 161 and 162 (pp. 130 and 132) states: Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. The Madras, Andhra Pradesh and Kerala High Courts have held that the test of mutuality does not require that the contributors to the common fund should willy-nilly distribute the surplus amongst themselves: it is enough if they have a right of disposal over the surplus, and in exercise of that right they may agree that on winding up the surplus will be transferred to a similar association or used for some charitable objects (Emphasis supplied) 16. British Tax Encyclopedia (I), 1962 Edn. (edited by G.S.A. Wheatcroft) at pp. 1201, dealing with mutual trading operations , the law is stated as under: For this doctrine to apply it is essential that all the contributors to the common fund are entitled to participate in the surplus and that all the participators in the surplus are contributors, so that there is complete identity between contributors and participators. This means identity as a class, so that at any given moment of time the persons w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construed myopically. While in some situations, the benefits may be evident directly in the short-run, in others, they may be accruable to an organization indirectly, in the long-run. Space must be made for both such forms of interactions between the organization and its members. Therefore, as Finlay J. observed in National Association of Local Government Officers Vs Watkins [9], where member of a club orders dinner and consumes it, there is no sale to him. At the same time, as in case of Commissioner of Income Tax, Bihar Vs. Bankipur Club Ltd.[10], where a club makes surplus receipts from the subscriptions and charges for the various conveniences paid by members, even though there is no direct benefit of the receipts to the customers, the fact that they will eventually be used in furtherance of the services of the club must be considered as a furtherance of the mandate of the club. 21. Thirdly, there must be no scope of profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. The locus classicus pronouncement comes from Rowlatt, J s observations in Thomas Vs. Richard Evans Co. Ltd.[11] wherein, while interpreting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine, beer and spirits were served to members on payment for the same. The question was whether a license was required under the Licence Act, 1872, to sell liquor by retail. In this context, the Queen s Bench Division held: I think the true construction of the rules is that the members were the joint owners of the general property in all the goods of the club, and that the trustees were their agents with respect to the general property in the goods, although they had other agents with respect to special properties in some of the goods. I am unable to follow the reasoning of the learned magistrate in saying that the question depends upon whether or not a profit was made upon the sale of the liquors. It appears to me immaterial whether the sum a member pays for the liquor is equal to or more or less than the cost price. The transaction does not become the more or the less a sale on that account. It cannot be the true view that if the member pays a sum exactly equal to the cost price there is no sale within the section, but that if he pays more than the cost price there is. The section must be construed by looking at the language used, and taking a large view of the object o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absent. This position has been rightly accepted even in the previous decision of this Court. 34.7. Hon ble Delhi High Court in the case of Duli Chand Vs Mahabir Parshad Trilok Chand Charitable Trust, AIR 1984 Delhi 144 held that 16. It is well-known that a Trust is not a legal entity as such. In fact, a Trust may be defined as an obligation imposed on the ostensible owner of property to use the same for a particular object for the benefit of a named beneficiary or a charity. Thus all Trustees in law are owners of the property but they are obliged to use the same in a particular manner. If a number of trustees exist, they are joint owners of the property. It is not like a Corporation which has a legal existence of its own and therefore can appoint an agent. A Trust is not in this sense a legal entity. It is the trustees who are legal entities. Section 48 of the Indian Trusts Act, 1882 States:- When there are more trustees than one, all must join in the execution of the trust, except where the instrument of trust otherwise provides. 35. In reply the learned Special counsel for Revenue submits that in the Calcutta Club and YMIA cases the basic issue was whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the case of an ICICI VCF, whose prime purpose is one of generation of profits from monies raised from several investors, which included PSUs, PSBs, LIC and other high net-worth organizations/individuals and employees of AMC, by providing facilities to achieve capital appreciation of the investors monetary assets; activities of a VCF are very much akin to the activities of a Bank or a Financial Institution and bears no comparison to a Members club, which, by its very composition, is a grouping of individuals who have chosen to be members of a particular institution like a Club for fulfilment of certain human needs, social, sporting, recreational, etc that cannot be fulfilled except in such organized collectives. 35.2. He relies on Hon ble Supreme Court s observations in the case of Yum! Restaurants and submits that while the Clubs operate for the common benefit of the members wishing to enter into a social exchange with no commercial content, the Funds are formed only for undertaking a commercial activity with a view to realizing profits /gains for Investors as well as Investee companies; there are structural differences between a VCF and a Club or Association; (i). in V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, the surplus funds of the club came to be used for a totally different purpose as the said funds were placed at the disposal of third parties; this, the Court held, cannot be categorized as an activity of the club; hence, the Court ruled that the second condition was violated; though surplus funds come back to the club along with interest thereon, it does not satisfy the third requirement, because, before that happens the surplus funds gets used by third parties and the member banks also derive profits by lending the funds to their clients. He submits that the Apex Court also referred to the earlier judgment of rendered in the case of Kumbakonam Mutual Fund (Para 30); in that case, the assessee ran a banking business restricted to its shareholders, i.e. the shareholders were entitled to participate in its various recurring deposit schemes or obtain loans on security; these recurring deposits were the main source of funds for advancing loans; the Apex Court held that the position of the assessee was no different from an ordinary Bank except that it lent money and received deposits from shareholders; its income lent it the character of an income from business and hence, it was rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have obtained Service Tax Registration for banking and financial services; they availed CENVAT credit of ₹ 17.04 crores during the period 04/2015 to 09/2015; the Fund has a bank account and prepares profit and loss accounts and registers themselves with SEBI etc; providers of service tax, CAs and legal consultants to the Fund, have raised invoices on them including service tax; Ministry of Corporate Affairs vide Circular No.37/2014 dated 14th October, 2014 clarified that Trusts are not barred to hold a partnership in an LLP in its name. 35.6. Relying on Hon ble Supreme Court in the case of Yum! Restaurants (marketing) Pvt. Ltd. Vs commissioner of Income Tax, he submits that the assessee therein was a Section 25 Company, set up for carrying on advertising, marketing and promotion for brands owned by its parent company; assessee received contributions from members i.e franchisees as well as two non-members; non-members did not get any monetary benefit from the surplus but only contributed some sums; Hon ble Court has observed that (Para 14) The doctrine of mutuality traces its origin from the basic principle that a man cannot engage into a business with himself for that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f or through its delegates, retaining a portion of the surplus money, otherwise distributable to investors, is not different from the view of the Hon ble Supreme Court in this judgment. 35.7. Replying to the reliance on the Judgment rendered by the Hon ble SC in the case of GSFC vs. CCE, Special Counsel submits that Court Ruled that the setting up of the common facility at the GSFC premises with contribution from GACL and GSFC and the sharing of expenses of handling did not amount to providing the service of Storage and Warehousing under the Service tax law by GSFC to GACL; while the GSFC case concerned mere sharing of expenses, the present cases involves receiving of monies and deploying the same in VCF activity, which is a typical activity of a financial institution; there is no joint venture between contributors; the facts of this case stand no comparison with the facts of the present appeals. 35.8. Learned special Counsel for summarises the following factors noticed in the facts of present case clearly point to absence of mutuality: (i) The flow of money, to and fro, was not maintained within the closed circuit formed by the Fund and the investor; after contributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of mutuality; the Trust satisfies the conditions laid down by the Hon ble Supreme Court in the case of Bangalore Club; the formulation of KYC policy and mandated by PMLA cannot be used against the appellants to establish a deemed service provider-recipient relationship; the amounts retained by the Trust are towards the expenses incurred on behalf of the contributors and not towards any service fee; Service Tax Circular No.94/5/2007-ST dated 15th May 2007 clarified that service tax will not apply to amounts retained by mutual funds towards expenses collected as entry load and exit load. Regarding the alleged partiality towards AMC, learned Senior Counsel submits that impartiality is not equality of treatment but means that a Trustee s treatment of beneficiaries or conduct in administering a Trust is not to be influenced by Trustee s personal favoritism; distribution of surplus was done in the manner laid down in the private placement memorandum which was circulated well before to the contributors. 37. Before discussing the merits of rival contentions, we find that it is expedient go through the scheme of the Trust. Ongoing through the Articles of IoT dated 16th Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stee shall have the power to make such results out of income or capital as the Trustee deems proper for expenses, taxes and other liabilities. In terms of Article 32, The contributors of the Trust shall have no right to make decisions with regard to the Trust, save and except to the extent provided in the Contribution Agreement; the contributors shall not participate or take part in the control of the Trust s affairs and shall have no right or authority to act for, or bind, the Trust save and except to the extent provided in the Contribution Agreement; in no event shall a Contributor have or acquire any rights against the Trustee except as expressly conferred on such Contributor hereby and in the Contribution Agreement, nor shall the Trustee be bound to make payment to any Contributors, except out of funds held by it for that purpose under the provisions of this Instrument; notwithstanding anything contained in this Instrument, the rights of the Subscriber s shall be as specified in the Contribution Agreement. As per Article 33.2, during mandatory redemption, the appellants in its absolute and sole discretion based on among other things market data available at the time of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e OIO contending the claim of the appellants that the Fund is neither a corporate entity nor does it have a personality distinct from Contributors/ Subscribers/ Investors, records that the arguments of the appellants is not acceptable as per the facts of the case which indicate that the main object of the assess is capital appreciation through the investment of contributors/ Subscribers/ Investors in the schemes devised by the appellants to gain profits/income; the motive of the fund is purely commercial; the Fund has independent identity and distinct personality of its own which is evident from the fact that the Fund is established as a Trust by ICICI Ltd. and is registered with SEBI; the Fund made investment in various companies; only a legal obligation with respect of ownership of property rests with the Fund is not true as the appellant is involved in the activity of capital invested by Contributors/ Subscribers/ Investors; the Fund also collects KYC Forms from the Contributors; therefore the Fund acts as a commercial concern. 37.3. Ongoing the rival submissions and the facts of the case, we find that a Trust are essentially mutual funds engaged in Portfolio management etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 675 (690) a Constitution Bench of the Supreme Court observed: 8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J. that the Legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait- jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with greater play in the joints has to be allowed to the Legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed that in Morey v. Doud 354 US 457 where Frankfurter, J. said in his inimitable style: In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principles of mutuality by concerning themselves in commercial activities and by using the discretionary powers to benefit a certain class of investors or nominees or employees or subsidiaries. They can no longer be treated as trusts for the purposes of taxation statutes at least. We find that the funds have been paying huge amounts to the AMCs in the form of Performance Fee and carry interest to the AMCs or their nominees. Thus, as far as the distribution of dividends/ profit is concerned, the Trusts made provisions to act in a manner which is beyond the interest of the Subscribers/ Investors/ Contributors. The funds, as can be seen from the records of the case, have reserved to themselves certain powers to utilize the dividends or profits in a manner which could benefit ultimately the entities which are not Subscribers/ Investors/ Contributors. This Act in itself negates the principle of mutuality of interest. Therefore, we come to a conclusion that though the funds are named as Trusts, by not adhering to the principle of mutuality of interest and by carrying out commercial activities have failed a test laid down by Hon ble Supreme Court in the case of Bangalore Club (supra). W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Trustee and paid to Management Investment Company is understood to be a reimbursement, there was no provision or scope for levy of service tax on the expenses reimbursed during the period in view of the Hon ble Delhi High Court s decision in the case of Intercontinental Consultants also affirmed by Hon ble Supreme Court. He also submits that Trust does not have a legal entity and therefore cannot be treated as a Person or commercial concern or body corporate leviable to service tax. He submits that while determining the existence of a service provider-recipient relationship, the intention of the parties to contract, gathered from the documents executed by such parties is of utmost importance. He further submits that scope of the definition of Banking and Other Financial Services does not cover facilitation services in relation to investments; there can be no demand on notional expenses in the form of accounting entries/provisions/ loss on sale of investments. 38.1. Regarding the amounts considered for calculating service tax in the impugned order, learned Senior Counsel for the appellants submits that the entire demand in relation to carry income pertaining to Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. He submits that since carry interest is part of the profit received by Class-B/C holders, service tax is not leviable. 39. On the other hand, learned Special Counsel for the Department submits that the questions that would arise are as to whether the Funds can be regarded as commercial concern for the period 04/2005 to 04/2006 and 06/2007 to 03/2012; be regarded as Person during the period 05/2006 to 05/2007 and whether the activities of the Fund fall under asset management including portfolio management, he submits that the expression commercial concern has not been defined in the Finance Act, 1994; therefore the term should be understood as per common parlance; the term commercial concern would in general denote an entity or a juridical person like a company or organisation engaged in commercial activities like sale, purchase or providing services for a consideration and having a profit motive; in general charitable institutions, entities which are not engaged in commercial activities in a commercial manner are not to be treated as commercial concern ; therefore the appellant is rightly considered a commercial concern . He submits that a conjoint reading of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement Definition from May 1,2006 to May 31,2007 banking and other financial services means (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or any other person , namely:- .. (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management Definition from June 1, 2007 onwards Banking and other financial services means (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely:- (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management 40.1. We find that the records of the case make it clear that the Trusts carried out activity of Venture Capital Funds. They managed the amounts invested by Contributors/ Subscribers/ Investors. They had discretion over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contributors but is retained from the amounts that are duly distributable to Subscribers/ Contributors/ Investors. It was argued by the learned Senior Counsel for the appellants that three distinct elements i.e. Service Provider, Service Recipient and Consideration are absent in the instant case. As found above, the Trusts are not amorphous entities and the mutuality of interest is no longer applicable in the instant case; Funds are rendering the service of Portfolio Management or Asset Management under BOFS to the Subscribers/ Contributors/ Investors and the consideration is in the form of withholding the dividends/ profits distributable Subscribers/ Contributors/ Investors. 40.3. We find that out of the eleven funds, for the ten funds, the settlor and the AMC is same i.e. ICICI Venture Ltd. (IVEN) and the Trustee was Western India Trustee and Executor Company Ltd. or ICICI Trusteeship Company Ltd. In the Econet Fund, the settlor was ICICI Bank Ltd. and Trustee was ICICI Trusteeship Services Ltd and ICICI Venture Ltd was the AMC. Learned Special Counsel for the Department argued the case saying that different entities of ICICI Ltd were used as a camouflage to avoid payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e common, commercial understanding of those terms used and not in their scientific and technical sense for the legislature does not suppose our merchants to be naturalists or geologists or botanists . We find that as per various cases cited above, have been held to be juridical persons as far as taxation is concerned. For this reason, there is nothing illegal or illogical in holding that trusts do exist and function as juridical persons as far as they are rendering services exigible to Tax as per the provisions of Finance Act, 1994 notwithstanding the treatment meted out to them under different statutes. We have no doubt whatsoever as regards the nature of the impugned trusts and the nature of services rendered by them to the subscribers. 40.6. we find that the Appellants have relied on Circulars No. 94/5/2007- Service Tax dated 15.05.2007 and Circular No. 96/7/2007-ST dated 23.08.2007 which is claimed to have clarified that the entry load and exit load charged by mutual fund being for management of asset or not liable to service tax. We find that the Circular dated 15.05.2007 categorises the expenses of mutual funds as (a) Initial issue expenses and (b). Recurring expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abstained from doing, or does or abstains from doing, or promises to do or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise . As per Black's Law Dictionary Consideration is not to be confounded with motive, consideration means something which is of value in the eye of the law, moving from the plaintiff, either of benefit to the plaintiff or of detriment to the defendant. 41.1. He submits that the carried interest paid as return on investments (Class B/C units) to the AMC or its affiliates is a performance fee paid to the AMC; it was alleged that in the case the returns on Class B/C units had been paid in form of performance fee, the same would have been reflected as part of expense in the hands of the Fund(s). Learned senior counsel submits that this contention is not applicable in case of all the Fund(s) as its factually incorrect; return on investment in case of class B/C unit holders is made in respect of India Advantage Fund I II; ICICI Econet Internet and Technology Fund and ICICI Emerging Sectors Fund; the carried interest in case of above-mentioned Appellants is distributed to Class B/ C unit holders as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in their written arguments and rejoinders that the carried interest paid as return on investments (Class B/C units) to the AMC or its affiliates is a performance fee paid to the AMC ; it was alleged that in the case the returns on Class B/C units had been paid in form of performance fee, the same would have been reflected as part of expense in the hands of the Fund(s). Learned senior counsel submits that this contention is not applicable in case of all the Fund(s) as its factually incorrect; return on investment in case of class B/C unit holders is made in respect of India Advantage Fund I II; ICICI Econet Internet and Technology Fund and ICICI Emerging Sectors Fund; the carried interest in case of above- mentioned Appellants is distributed to Class B/ C unit holders as return on investments made by such unit holders; such carried interest paid the Appellants has been put to income tax in the hands of Class B/C unit holders; assuming but not admitting that such return on Class B/C units is an expense incurred by the Fund(s), such expense incurred by the Appellants cannot be construed as value of taxable services as these are neither received nor retained by the Funds; out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to performance fee; AMC wears two hats; as a Contributor the AMC gets a return based on a pre- agreed formula, which in absolute terms is less than the amount distributed to Class A unit holders; revenue alleges that Carry Interest is like a performance fee; Carry Interest is disproportionate to the investment made by Class B/C unit holders and that it is reflective of the performance of the AMC. He submits that any return, on investment to Class B/C unit holders is based on prior disclosures made in the PPF as also in the IOT; carry Interest is paid after first return of capital to Class A unit holders and after payment of the preferred rate of interest (return) to Class A unit holders (e.g. 15%); it is thereafter that 20% of the balance remaining is distributed to Class B/C unit holders and finally, the balance remainder, if any, is once again distributed in the ratio of 80:20 to Class A unit holders and Class B/C unit holders respectively; in the present case, out of the total 11 Funds, Class B/C unit holders exist in case of 6 Funds; out of these 6 Funds, Carry Interest was paid to Class B/C unit holders in only 3; there is a loss in the other 3 cases; since Carry Interest is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther interest nor return on investment; it is a compensation/ performance fee paid to the AMC or any person/ entity designated by them, as a special class investor/ unit holders. CI is contingent to pay outs (realizations generated by exiting portfolio investments) by the Fund; such carried interest is credited to Class-B (Special Unit Holders) only when the net realization recognized by selling and exiting portfolio investment the sum total of the capital committed and the appreciation is gained as per the pre-agreed preferred rate; CI is a function of profitable exits during a given year which means it s a profit sharing mechanism; it indicated that the profit sharing is 20% of net realization and it happens even when the capital contribution from these unit holders (Class-B) is only 0.0003% of the total capital commitment. He further states that it is clear from IoT, IMA and PPM that Class-B unit holders are Investment Manager and its employees or any Trust set up for the benefit of the employees, or such other person as the Investment Manager may in its own discretion appoint; he points out that the key word is Appointment . He submits that from the Annual Report of the Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds Management Company Ltd. approved a carry plan for the employees; the carry plan envisages that the said company will arrange to directly pay carrying from the Performance Fee earned by it from its funds to the employees through a special Trust created for the purpose in the manner mentioned therein. Learned Special Counsel submits that the above documentary proof makes its crystal clear that the entire scheme was devised to allow AMC to appropriate staggering returns and it allows the AMC to term the income as Performance Fee; in fact, the fund is paying the consideration to the AMC from the amounts that could have been otherwise distributed to the Class-A Unit holders. 43. We find in the Director s Report (14th Annual Report and Accounts 2001-02 of ICICI Venture Funds Management Company Ltd.), it is stated that [under (a) revenue analysis] carried interest is paid to AMC only when the capital committed and preferred rate of return are returned to the investors after actual divestment has been done. It is also stated (under the outlook) that a successful VC and PE practice is one that ensures continuity (and a lower degree volatility) of annual cash flows to the asset man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sectors Fund, it is clear that capital was committed by Class-A Units in 2002 whereas Class-B Units subscribed in 2006 when the Fund was ready to pay Carried Interest after returning capital and realization of preferred rate of return to the Class-A investors. We find that in the Director s Report Annual Report of IVEN for the year 2007-08 states under analysis of financial performance that ₹ 530.7 million was a Performance Fee earned whereas under Schedule-VIII, it is shown as income from investment in Venture Capital Fund. It is seen in the IoT of India Advantage Fund (Article 12.6) that: 12.6 Escrow Each holder of Class-B Units will by acquiring such Class-B Units, undertake to deposit 100% of all receipts by it of Carried Interest into an escrow account maintained by the Investment Manager and for such receipts to remain in such deposit account in order to satisfy and claw back obligation under Clause 12.5 above. 43.2. We find that the Trusts are floated for drawing Contributors/ Subscribers/ Investors and to facilitate such persons to earn profits or gains out of the acquisition, holding and subsequent disposal of assets by the Trust/ Fund. The principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l expenses but are only accounting adjustments which are required to be made to reflect the true and correct financial status of the Appellants as mandated under accounting principles; these cannot be treated as amounts retained by the Appellants from the Contributors for providing any services to the Contributors; out of the total amount of INR 28,51,49,62,689 treated as consideration received by the Appellants in the Impugned Orders, an amount of INR 12,37,36,99,793, is towards these accounting entries, which should clearly be excluded from the amounts under dispute, as these cannot be treated as amounts retained by the Appellants for providing services to the Contributors. We find that the bench cannot decide over such calculations. It will be in the fitness of the things to remand the matter to the adjudicating authority to verify the veracity of the claims. Limitation 44. Learned Senior Counsel for the appellants, making his submissions on the issue of limitation submits that the impugned Orders have invoked the extended period of limitation alleging that the Appellants has suppressed the material facts from the department wilfully; failed to make payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the Offer documents issued by the Funds were available in public domain;(c) The Annual reports and Accounts were also available in public domain and (d) The basic activity of the Appellant is similar to that of Mutual funds wherein also, there are expenses pooled. He submits that reasons adduced at (a), (b) and (c ) above bank on the availability of information about the subject ICICI VCFs such as, registration with SEBI and offer documents and annual reports being in public domain; these do not amount to disclosure to the Department as clearly brought out in OIO; the theory of universal knowledge cannot be attributed to the department in the absence of any declaration ; ICICI Venture as the AMC was fully in the know of the requirements under the S Tax law; reading together section 70(1) and section73 of the Finance Act, 1994, make it clear that under the S Tax law, self-assessment and remittance of tax are the statutory responsibility of an assessee; non- compliance with this basic requirement cannot be wished away by stating that there was no intention to evade tax; prior to following the above procedure, all the 11 Funds ought to have registered with the concerned/proper offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. It is only after investigation has been initiated, the necessary documents were submitted. Thus, the information available in the public domain is of no avail. We find that learned adjudicating authority has rightly relied upon in the case of CCE, Calicut Vs Steel Industries Kerala Ltd, 2005 (188) ELT 33 (Tri. Bang.) wherein it is held at Para 3 as under: 3. We find that in the case of Maruti Udyog Ltd. Vs CCE, New Delhi, 2001 (134) ELT 269, the Tribunal has upheld the invocation of the extended period of limitation when the assessees did not declare waste and scrap of iron and steel and aluminium and availment of credit therein either in their classification list or modvat declaration or in the statutory records. The Tribunal held that the theory of universal knowledge cannot be attributed to the department in the absence of any declaration. 46.1. We also find that the appellants relied upon the Hon ble Supreme Court s decision in the case of Collector of Central Excise, Jaipur v. Alcobex Metals reported in 2003 (153) E.L.T. 241 (S.C.). However, we find that in that case as submitted by learned Special Counsel for Revenue, the issue of jurisdiction of the issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilure no penalty can be imposed; this provision being a non-obstante provision, has overriding effect over the other provisions that are in conflict with it; the Appellant has established its bona fides that it was under the belief that no service tax was payable and the master circular also states that similar expenses incurred by a mutual fund are not chargeable to service tax on amounts demanded; Appellant s case is well covered by the exception provided under section 80 of the Act, which primarily is meant to protect genuine and reasonable situations. 47.2. On the other hand, learned Special Counsel for the Revenue submits that there was a deliberate default by the appellants and thereby extended period has been rightly invoked; Section 76 penalty is for default in payment of duty and Section 78 penalty is for deliberate default of penalty. Relying upon the Hon ble High Court of Kerala decision in the case of Krishna Poduval, 2006 (1) STR 185 (Kerala). He submits that prior to May 10, 2008, penalty under both sections is imposable and after May 10, 2008, penalty under Section 78 would apply. 48. We find that in the instant case, the appellants have not obtained registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrong figures taken by department/losses would be ₹ 1,31,74,18,678 and CENVAT availability would be ₹ 1,29,57,64,253 which is 98 percent of the demand; principle of allowing the demand to be paid net of CENVAT credit that is otherwise eligible has been expressly recognized in the interim order passed by this Hon ble Bench; he also relies upon. (i). Formica India Division Vs CCE - 2002 -TIOL -599-SC-CX Para 2 and 3 (ii). Dineshchandra R Agarwal Infracon Private Limited v CCE, Ahmedabad- 2010 (18) STR 39 (Tribunal - Ahmedabad) Para 3 (iii). Shah Yarn Tex P Ltd vs CST -2008-TIOL-1975-CESTAT-MAD Para 2 (iv). Shah Yarn Tex P Ltd vs CST - 2016-TIOL-351-HC-MAD-CX Para 9, 11 (v). OK Play India Ltd vs CCE - 2017-TIOL-4054-CESTAT-CHD Para 6 49.1. Learned senior counsel submits that notwithstanding the submissions made above where they are of the strong belief that service tax shall not be payable by the Appellants; in case the service is held to be taxable, CENVAT credit shall be eligible to be taken with respect to the services provided by the Appellants and provisions should be excluded from the demand; the adjudicating authority has not provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nior Counsel for the appellants submits that in respect of certain accounting Heads which were considered as expenses were submitted to the adjudicating authority and no finding has been given in the OIO. We find that the cases relied upon by the appellants support their claim both for CENVAT credit and cum duty benefit. We find that Kolkata Bench of CESTAT in the case of Advantage Media Consultants (supra) has held as follows: 3. Service tax is an indirect tax. As per this system of taxation, tax borne by the consumer of goods/ services is collected by the assessee (manufacture/ service provider) and remitted to the Government. When the amount is collected for the provision of services, the total compensation received should be treated as inclusive of service tax due to be paid by the ultimate customer of the services unless service tax is also paid by the customer separately. So considered, when no tax is collected separately, the gross amount has to be adopted to quantify the tax liability treating it as value of taxable service plus service tax payable. We find that this principle has been legislated in the following terms with effect from 18.04.2006 in Section 67 (2) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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