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TMI Blog2025 (5) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant had availed irregular Cenvat Credit on exempted services and on certain inputs. Essentially, it was alleged that the appellants were engaged in purchase and sale of mutual fund units from Birla Sunlife Mutual Fund (BSMF) and that the said activity was treated by the department as trading of goods, inasmuch as mutual funds were covered within the definition of 'securities' and which in turn is included in the definition of 'goods'. Therefore, the said transactions of sale and purchase of mutual fund units were considered as 'trading of goods', which was considered as exempted service. As a consequence, the appellants were required to comply with the provisions of Rule 6 of CCR. The department noticed following categories of input services in respect of which Cenvat credit had been availed by the appellant as relatable to trading of securities. a) Office rent and electricity services b) Internal audit services c) Statutory tax audit services d) Travel agency services e) Director sitting fees f) Travel agent's services 3. Thereafter, as the appellants were found to be providing both exempted service as well as dutiable service, the department for the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reliance placed by the Adjudicating Authority on Rule 6(3AA) of CCR is wrong as the said provision was introduced w.e.f. 01.04.2016. Therefore, for the period prior to this insertion i.e., October, 2013 to March, 2016 involving demand of Rs.1,48,57,279/-, the Adjudicating Authority grossly erred in dropping the same by adopting a subsequently introduced provision. Further, even for the period subsequent i.e., April, 2016 to June, 2017, reliance on Rule 6(3AA) is also erroneous as certain procedural requirements stipulated in relation to Rule 6(3A) as well as Rule 6(3A)(ii) were required to be met. Therefore, the Adjudicating Authority has wrongly extended the benefit by suo moto invoking sub-rule 6(3AA). 6. Appellants are also in appeal (ST/30176/2019) on similar issue for the period from 2013-14 to 2015-16, against OIA dt.29.10.2018, whereby total demand of Rs.64,85,502/- was confirmed invoking extended period along with interest and penalties. 7. Learned Advocate for the appellant has mainly contested that the allegation that they were engaged in trading of securities is not correct and is not based on correct appreciation of facts and law in this regard. They were merely inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before we embark on the issue whether the activity being undertaken by the appellant is a trading activity or otherwise, it would be appropriate to understand the statutory provisions. As per section 65B(25) of the Act, 'goods' means every kind of movable property other than actionable claim and money, and includes, inter alia, securities. As per section 65B(43) of the Act, 'securities' has the meaning assigned to it in clause (h) of section 2 of the Securities Contract (Regulation) Act, 1956 and as per the said section, 'securities' include, inter alia, units or any other such instrument issued to the investors under any mutual fund scheme. Therefore, as per these statutory provisions, unit under any mutual fund scheme has to be considered as securities. 11. Further, in terms of section 66D, certain services on which no service tax is leviable includes trading of goods vide section 66D(e) of the Act. Further, as per section 66B of the Act, which is the charging section, w.e.f. 01.07.2012, service tax is levied on all services other than those services specified in the negative list under section 66D. Therefore, trading of goods, which is specified under negative list, would clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(1), as inserted w.e.f. 01.04.2016, which states as under:- "Explanation 3 - For the purposes of this rule, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a service as defined in section 65B(44) of the Finance Act, 1994 provided that such activity has used inputs or input services." 15. Essentially, he felt that even when the output activity is not covered by the definition of service, payment of amount calculated in the provided manner or reversal of credit relatable to such activity is required to be made, since such activity is deemed to be an exempted service. Further, the Adjudicating Authority has also taken into consideration that assuming that the noticee, per se, was not engaged in trading, the fact remains that they were transacting in securities and on such activity, no service tax was being discharged by them. Therefore, relying on the judgment of the Tribunal in the case of Orion Appliances Ltd Vs CST, Ahmedabad [2010 (19) STR 205 (Tri-Ahmd)], as also in the case of Mercedes Benz Pvt Ltd Vs GCE, Pune-I [2014 (36) STR 704 (Tri-Mumbai)], where it was found that trading was not a service, still it was held that the portio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been defined as "sale" and "purchase", with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration. Therefore, in the context of Central Excise Act, sale and purchase would entail transfer of possession of goods and therefore, even in the case of securities being considered as goods, there has to be transfer of securities. In the given factual matrix, it is apparent that no actual transfer of underlying assets or securities is being effected from the fund to the appellant or vice versa. In fact, it is more like mutual fund is the custodian of all the underlying assets in which they have invested the money received from the appellant and in lieu thereof they have created certain units in their name and are holding the same on their behalf. Thus, as and when they want to invest, more units will be created in their name and similarly, as and when they want to redeem, those units will be liquidated or extinguished in their favour and the said unit may get further allotted in the name of other person who is inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s trading is an exempted service, keeping in view the explanation added to Rule 2(e) vide Notification No. 03/2011-CE(NT), which made it amply clear that exempted service includes trading. The Hon'ble High Court observed that with the introduction of explanation to Rule 2(e) of CCR, 2004, w.e.f. 01/04/2011, which will be prospective in applicability, exempted services included trading and consequential amendment was also made in Rule 6 by inserting explanation (1) to define the value of 'trading' for the purpose of formula given in sub- rule (3A) of Rule 6. Finally, on the issue whether the assessee could claim the credit on input, which were neither service nor manufacture, in view of Rule 6(2), inter alia, held that whenever someone undertakes activities that cannot be called either as service or manufacture, then that activity goes out of the purview of both Central Excise Act as well as the Finance Act. In such cases, an assessee would be ineligible for claiming input service tax credit on an output which is neither a service nor excisable goods. This order was affirmed by Hon'ble Supreme Court. 20. While the Adjudicating Authority himself had some doubt whether this activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng service, cannot be treated as exempted service for the purpose of Rule 6. Further, even though in terms of explanation 3, if an activity is not a 'service' in terms of section 65B(44), it would still be deemed to be 'exempted service' for the purpose of Rule 6. However, this amendment has been made only w.e.f. 01.04.2016. Thus, even if an activity is not a service, it would be deemed to be covered under the expression 'exempted service' for period after 01.04.2016 and not before that. Moreover, the word exempted service is quantified by the term provision of exempted services. For reasons discussed supra, how the appellant could be considered as provider of service or exempted service in a given factual matrix. 22. Further, we note that the Coordinate Bench at Delhi in the case of M/s Seigwerk India Pvt Ltd Vs CCGST [2025-VIL-433-CESTAT-Del-ST], dealing in similar issue, inter alia, held that subscription and redemption of liquid mutual fund units cannot be termed as trading of goods and therefore, would not fall under the exempted service under section 66D(e) of the Act. The activity to classify as 'exempted service' under Rule 2(e) of CCR, needs to be qualified as 'service', ..... X X X X Extracts X X X X X X X X Extracts X X X X
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