The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the subscription and redemption of liquid mutual fund units cannot be classified as "trading of goods," thereby clarifying that such financial transactions do not fall within the ambit of taxable goods under indirect tax laws.
The appellant, engaged in various taxable services, also invested surplus funds in mutual fund units and redeemed them when needed. A show cause notice alleged that such transactions amounted to "trading of goods" under the Negative List, making related input services ineligible for CENVAT credit without separate accounting. The adjudicating authority confirmed the demand, and the first appeal was dismissed. The appellant then challenged the order before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) observed, “the principle of law enunciated is that the subscription and redemption of liquid mutual fund units cannot be termed as “trading of goods” and, therefore, do not fall under the exempted services under Section 66D(e) of the Finance Act. The activity to classify as “exempted service” under Rule 2(e) of the Cenvat Credit Rules, 2004 needs to be qualified as “service”, as defined under Section 65B (44) of the Act, meaning thereby that service is an activity carried out by a person for another for consideration and includes a “declared service‟ but excludes a transfer of title in goods or immovable property by way of sale, gift, etc. As noted in the above decisions, the activity of investment in mutual funds does not involve the presence of a service rendered by a service provider towards a recipient of service for some consideration. Following the principles enunciated in various decisions, the activity undertaken would not amount to “service‟ in terms of Section 65B(44) of the Act.”
The Tribunal, while allowing the appeal, held that the subscription and redemption of liquid mutual fund units do not qualify as “trading of goods” and therefore cannot be treated as exempted services under Section 66D(e) of the Finance Act.
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