Custom, Excise & Service Tax Tribunal
Instakart Services Pvt Ltd vs Commissioner Of Central Tax Bengaluru ... on 13 March, 2024
ST/21017/2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
BANGALORE
REGIONAL BENCH - COURT NO. 1
Service Tax Appeal No. 21017 of 2019
(Arising out of Order-in-Original No. 16/ST/COMMR/2018 dated
26.12.2018 passed by the Commissioner of Central Tax, Bangalore.)
M/s. Instakart Services Pvt. Ltd.
Building Alyssa, Begonia & Clover, Embassy
Tech Village, Outer Ring Road, Appellant(s)
Devarabeesanahalli Village,
Bengaluru - 560 103
Karnataka.
VERSUS
Commissioner of Central Tax,
Office of Commissionerate of Central Tax,
Bengaluru South, C.R. Building,
Queens Road,
Respondent(s)
Bengaluru - 560 001.
APPEARANCE:
Shri Tarun Gulati, Sr. Advocate with Shri Kishore Kunal K. K., Advocate for the Appellant Shri K. Vishwanatha, Superintendent, Authorised Representative for the Respondent.
CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MRS R BHAGYA DEVI, MEMBER (TECHNICAL) Final Order No. 20415/2024 DATE OF HEARING: 13.03.2024 DATE OF DECISION: 13.03.2024 PER : D.M. MISRA This appeal is filed against Order-in-Original No.16/ST/COMMR/2018 dated 26.12.2018 passed by the Commissioner of Central Tax, Bangalore South Commissionerate.
2. Briefly stated the facts of the case are that the appellants are discharging Service Tax for rendering service as Page 1 of 8 ST/21017/2019 well as recipient of service. They also availed CENVAT credit on input services and utilizing the same in discharging their Service Tax liability. During the course of audit of the records, it came to the notice of the department that during the period July 2015 to September 2016, though they were trading in Mutual Funds but failed to discharge 6% / 7% of the value under Rule 6(3) of Cenvat Credit Rules, 2004 (CCR); also, the appellant has not paid Service Tax on the amount received from their employees for waiver of notice period on leaving the employment. Consequently, show-cause notice was issued demanding an amount of Rs.7,75,11,889/- being 6% / 7% of the value of traded service i.e., mutual funds; and Rs.7,84,641/- Service Tax not paid on the amount received on waiver of notice period charges from the employees during the period December 2015 to September 2016 with interest and penalty. On adjudication, the demands have been confirmed with interest and penalty. Hence, the present appeal.
3. At the outset, the learned Senior Advocate for the appellant has submitted that the demand has been confirmed on investment in mutual funds considering the same as an activity of trading of goods, which was an exempted service for the purpose of Service Tax as per Section 66B and 66D(e) of the Act and Rule 2 of the CCR, 2004; further, he has submitted that the learned Commissioner has held that the amount is payable by the appellant as per Rule 6(3)(i) of CCR, 2004 since the appellant had availed credit on common input services used for both taxable and exempted services, but failed to maintain separate accounts. He has submitted that investment and redemption of mutual funds does not amount to rendering any service and also cannot constitute 'trading' in goods (Mutual Funds). Therefore, Rule 6(1) of CCR, 2004, itself would have no application as the transaction would not qualify as service or as an exempted service. In the present case, the appellant was only rendering taxable services, therefore, the Sub-Rule 6(1) of CCR, 2004 will not apply.
Page 2 of 8ST/21017/2019 Consequently, the Sub-Rule (2) and (3) of Rule 6 of CCR, 2004 accordingly cannot be held to be applicable when subrule (1) itself is not attracted.
3.1 Further, he has submitted that an activity can qualify as a service only on existence of three essential elements viz., service provider, service receiver and a consideration for undertaking such activity. In the present case, all these essential elements to constitute service are completely absent; the activity is only investment in mutual funds and redemption thereof by the appellant. Therefore, there is no service provider, service receiver or a consideration involved in the said activity i.e., investment in mutual funds on their own account. Therefore, the investment in mutual fund also cannot be considered as an exempted service. In support, he has referred to the following judgments:
a. Ruchi Infrastructure Ltd. vs. CCE & ST, Indore, 2020 (37) GSTL 236 (Tri. Del.) b. Mormugao Port Trust vs. CCE & ST, Goa, 2017 (48) STR 69 (Tri. - Mumbai) c. Commissioner of CGST & CE vs. Edelweiss Financial Services Ltd., [2023] 149 taxmann.com 76 (SC) d. Space Matrix Designs Consultants (P.) Ltd. vs. Commissioner of Central Tax, Bangalore North, [2021] 127 taxmann.com 51 (Bangalore - CESTAT) e. Ace Creative Learning (P.) Ltd. vs. Commissioner of Central Tax, [2021] 126 taxmann.com 215 (Bangalore CESTAT) f. United Racing and Blood Stock Breeders Ltd. vs. Commissioner of Central Tax, Bangalore: 2023 (5) TMI 84 g. M/s Indiabulls Securities Ltd. vs. CCE, 2018 (1) TMI 1087- CESTAT New Delhi h. Ambuja Cements Ltd. v. Commissioner of Customs, Central Excise & GST Nagpur, 2023 (5) TMI 806 [Pg. 27A to 27L of Compilation] 3.2 On the issue of demand of Service Tax on the amount of charges recovered by the appellant from their employees who had not served the notice period in terms of employment contract is also not tenable. The amount recovered from the Page 3 of 8 ST/21017/2019 employees who leave the job without serving the notice period is merely on account of employment contract which cannot be regarded as services rendered as the contract of employment does not contemplate provision of service by the appellant to the employee. Thus, there is no service in the instant case and accordingly, Service Tax demand is bad in law. In support, he has referred to the judgment of this Tribunal in the following cases:
a. Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. vs. CGST, Customs and Central Excise, [2022] 135 taxmann.com 6 (New Delhi - CESTAT) b. GET & D India Ltd. vs. Deputy Commissioner of Central Excise, [2020] 119 taxmann.com 55 (Madras) c. Amit Metaliks Ltd. vs. Commissioner of Central Goods & Service Tax, Bolpur, [2021] 127 taxmann.com 248 (Kolkata - CESTAT) d. Madhya Pradesh Poorva Kshetra Vidyut Vitran Co. Ltd. vs. Principal Commissioner CGST and Central Excise, Bhopal, [2021] 126 taxmann.com 181 (New Delhi - CESTAT) e. Rajcomp Info Service Ltd. vs. Commissioner of Central Excise Commissionerate, Jaipur, [2022] 141 taxmann.com 223 (New Delhi - CESTAT) f. South Eastern Coalfields Ltd. vs. Commissioner of Central Excise and Service Tax, [2021] 124 taxmann.com 174 (New Delhi - CESTAT) g. M/s Balaji Medical and Diagnostic Research Centre v. Principal Commissioner, Central Goods and Service tax (East Delhi), New Delhi, 2023 (12) TMI 748-CESTAT New Delhi h. M/s Bharat Dynamics Ltd. v. Commissioner of Central Tax, Hyderabad, 2022 (9)TMI 1445-CESTAT Hyderabad i. M/s KJS Cement Ltd. v. Commissioner of CGST, Central Excise & Customs Jabalpur, (MP), 2023 (12) TMI 903-CESTAT Delhi j. M/s Shriram Pistons & Rings Ltd. v. Commissioner of Central Tax, Ghaziabad, 2020 (3) TMI 844 CESTAT Allahabad k. XL Health Corporation India (P.) Ltd. vs. Commissioner of Central Tax, [2022] 138 taxmann.com 437 (Bangalore CESTAT)
4. Learned Authorized Representative for the Revenue reiterated the findings of the learned Commissioner.
Page 4 of 8ST/21017/2019
5. Heard both sides and perused the records. The issues involved in the present appeal for determination are: (i) whether the amount 6% or 7% on is payable on the differential value of mutual fund investment and realization under Rule 6(3)(i) of CCR, 2004 being an exempted service;
(ii) amount recovered from the employees in lieu of service period on leaving the employment is leviable to Service Tax.
6. The appellants are investing their surplus in mutual funds and not traded the same as securities. The Revenue considering such investment in mutual fund which later sold by the appellant, as trading in goods, accordingly is an exempted service, hence demanded 6% / 7% of the value under Rule 6(3)(i) of the CCR, 2004 as common input services were used in providing taxable services and exempted service. We find that this issue is no more res integra since considered in a series of judgments of this Tribunal. In Ace Creative Learning (P.) Ltd. case (supra), this Tribunal analyzing the provisions applicable to investment in mutual funds held as follows:
"5. After considering the submissions of both the parties and perusal of the material on record, I find that the appellant is providing Commercial Training and Coaching Services and they have also invested in the mutual funds and have earned profit during the year 2014-15, 2015-16 & 2016-17 which they have shown as under the head "other income". The Department has wrongly considered the investment in mutual fund as trading in mutual funds and has issued a notice on the presumption that the appellant is providing exempted services which is trading in mutual funds and has not maintained separate records for common input services availed in providing the output services and exempted activity i.e. trading and hence are liable to pay 6%/7% of the amount of exempted services. Further I find that the 'trading' has not been defined under the Service Tax but in the context of securities, 'trading' means an activity where a person is engaged in Page 5 of 8 ST/21017/2019 selling the goods and occupy for the purpose of making profit but certainly trading is different from redemption of mutual fund units, in the present case appellant cannot transfer the mutual fund units to third party and give only by redemption to the mutual fund because the appellant is not permitted to trade mutual fund unit in the absence of a license from the SEBI. There is a restriction on the right to transfer unit and the appellant cannot transfer units to any other person. Further I find that the appellant cannot be termed as "service provider" because he only makes an investment in the mutual fund and earn profit from it which is shown in the Books of Accounts under the head "other income". Hence the question of invoking Rule 6 does not arise and I am of the view that Department has wrongly invoked the provisions of Rule 6(3) demanding the reversal of credit on the exempted services. I also find that substantial demand is time- barred as during the audit, the Department entertained the view that the appellant is engaged in providing the exempted services and consequently issued the show cause notice. The appellant has been filing the returns under the taxable service of 'Commercial Training and Coaching and has provided all the records to the Department during the course of investigation and has not suppressed any material fact from the Department and in view of the various decisions relied upon by the appellant, extended period cannot be invoked where the Revenue's case is based on Balance Sheet and income return and other records of the assessee. In view of my discussion above, I am of the considered view that the impugned order is not sustainable in law and the same is set aside by allowing the appeal of the appellant."
6.1 The laid down principle has been followed subsequently by the Tribunal in Ambuja Cement Ltd.'s case (supra) and United Racing and Blood Stock Breeders Ltd. (supra). No contrary decision has been placed by the Revenue.
Page 6 of 8ST/21017/2019 6.2 Thus, following the said precedents, it can safely be inferred that the investment in mutual funds by the appellant cannot be considered as an activity involving exempted services nor sale/trading of exempted goods. Thus, the demand on this count cannot be sustained.
7. On the issue of recovery of the amount from the employees for not serving the notice period on leaving the employment, we find that it has been considered by this Tribunal in XL Health Corporation India (P.) Ltd. case. Following the principle laid down in earlier judgments, this Tribunal held as follows:
"6. The term 'notice pay' mentioned in the employment contract cannot be considered as a service, more specifically as the taxable service inasmuch as neither of the parties to the contract have provided any service to each other. Thus, the phrase 'service' defined in Section 65B (44) ibid and 'declared service', as defined in Section 65B (22) are not applicable for consideration of such activity as a service for the purpose of levy of service tax. Further, the amount received as compensation by the appellants cannot be equated with the term 'consideration' inasmuch as the latter is received for performance under the contract; whereas, the former is received, if the other party fails to perform as per the contractual norms. We find that the issue arising out of the present dispute is no more open for any debate, in view of the judgments relied upon by the learned Consultant for the appellants. The Hon'ble Madras High Court in the case of GE T & D India Limited (supra) has held that in absence of rendition of any taxable service, the amount received as consideration cannot be termed as taxable service for the purpose of levy of service tax thereon. The relevant paragraph in the said judgment is extracted herein below:
"11......the employer cannot be said to have rendered any service per se much less a taxable service and has merely facilitated the exit of the employee upon imposition of a cost upon him for the sudden exit. The definition in clause (e) of Section 66E as extracted above is not attracted to the scenario Page 7 of 8 ST/21017/2019 before me as, in my considered view, the employer has not "tolerated‟ any act of the employee but has permitted a sudden exit upon being compensated by the employee in this regard.
12. Though normally, a contract of employment qua an employer and employee has to be read as a whole, there are situations within a contract that constitute rendition of service such as breach of a stipulation of noncompete. Notice pay, in lieu of sudden termination however, does not give rise to the rendition of service either by the employer or the employee."
7. Further, we also find that by relying upon the above judgment of Hon'ble Madras High Court, this Tribunal in the case of M/s. Intas Pharmaceuticals (supra) and M/s Rajasthan Vidhyut Prasaran Nigam Ltd. (supra) has held that any compensation paid by the employee to the employer for resigning from the service without giving the requisite notice, would not be termed as consideration for the contract of employment and as such, would not fall within the preview of taxable service.
7.1 In view of the above precedent, the demand of Service Tax on the charges recovered by the appellant from the employees in lieu of notice period, also cannot be sustained.
8. In the result, the impugned order is set aside and the appeal is allowed with consequential relief, if any, as per law.
(Order dictated and pronounced in Open Court.) (D.M. MISRA) MEMBER (JUDICIAL) (R BHAGYA DEVI) MEMBER (TECHNICAL) rv Page 8 of 8