2021-TIOL-1417-HC-KAR-ST

Shrinidhi Telefilms Vs CCE

ST - Neither Commissioner of Central Excise (Appeals) nor the Tribunal have considered the submissions made on behalf of the appellant and by a cryptic and cavalier manner have decided the appeals - The Assistant Commissioner has also not assigned any reasons for confirming the demand - The impugned orders passed by Assistant Commissioner, Commissioner of Central Excise (Appeals) and the tribunal therefore, cannot be sustained in the eye of law and in the fact situation of the case, the remand of the matter to the Assistant Commissioner has become inevitable - The impugned orders are therefore, quashed and the matter is remitted to the Assistant Commissioner to afford an opportunity of hearing to the appellant and to adjudicate the issue with regard to issue of penalty afresh- appeal is disposed of: High Court [para 9]

- Matter remanded: KARNATAKA HIGH COURT

2021-TIOL-359-CESTAT-BANG

ICICI Econet Internet And Technology Fund Vs CCT

ST - Appellants are venture capital funds (VCF) established as a trust under the Indian Trusts Act, 1882, and registered with the Securities and Exchange Board of India ("SEBI") as a Venture Capital Fund ("VCF") - The Appellants are represented and managed by a Trustee and the terms and conditions pertaining to the formation of the Appellants-Trust are contained in the Indenture of Trust - a Private Placement Memorandum (PPM), which is an Offer Document for inviting contributors or subscribers to be part of the Trust set up by the Settlor, is issued with the intent of allowing evaluation of possibility of investment in the units of the VCF; the Appellants' properties (i.e. money contributed by investors) are held in trust by the Trustee for the benefit of beneficiaries, who are contributors to the Funds ("Contributors/ Beneficiaries"); the Trust Deed executed for this purpose, lays down the objectives for which the Appellants' Trusts are set up, its establishment, management and other allied matters; the Trustee receives remuneration in the form of Trusteeship fees for services rendered by it to the Appellants - To ensure that the Appellants receives relevant professional and 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 the Tribunal

Held:

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 covered under Section 65(12)(a)(v) of the Finance Act, 1994 rendered by the Trust to the contributors/beneficiaries.

(iii) Do the expenses incurred by the Trust, performance fee paid to the Investment Manager and carry interest paid to certain class of members and provision for losses and impairment of investment debited to financial constitute consideration for" services" to the contributors/beneficiaries.

(iv) Is invocation of extended period in the facts and circumstances of the case justified?

(v) Whether imposition of penalty is correct.

Mutuality of Interest

++ Bench finds that 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. [para 37.3]

It is clearly stated in the IoT that the objective of the Trust is:

"ICICI desires to provide financial and other assistance by setting up a venture capital fund. The objective of the Trust (as defined herein below) will be to achieve long term capital appreciation by providing financial and other assistance to such persons as is permitted under the applicable regulations (including SEBI Regulations)"

++ Similarly, it is mentioned clearly in various places that the Trust Fund shall be managed by the Trust and the object of the Trust is to carry on the activity of a Venture Capital Fund. It is interesting to notice that to enable the funds, to distribute the dividends and other amounts payable on or in respect of Units, a mechanism in the form of Private Placement Memorandum and/or Scheme Document are created. Thus, the profit motive of the Trust is evident. All these Trusts have registered themselves under VCF Regulations, 1996 issued under SEBI Act, 1992. We find that in terms of Regulation 2(m), VCF means a fund established in the form of a Trust or a Company including a body corporate registered under VCF Regulations. As the Trusts are treated as juridical persons for the purposes of SEBI Regulations, we do not find any reason as to why they should not be treated so for the purpose of taxation. Taxation Law being a specific legislation just as the SEBI Act, 1992 should prevail over the general Trust Act and the definition given thereof. [para 37.4]

++ A conjoint perusal of the records, facts of the case with judicial pronouncements, would lead us to the conclusion that the impugned trusts have violated the 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 the test laid down by Hon'ble Supreme Court in the case of Bangalore Club ( 2013-TIOL-05-SC-IT ).

++ There is basic difference between these funds and clubs. The trusts as seen above have been initiated with a profit motive, and the activities are akin to those of a Bank or financial Institution. The clubs, on the other hand, have no or minimal commercial interest and basically are formed to share facilities, which would normally be inaccessible or unaffordable at an individual level.

++ Revenue counsel has rightly submitted that VCFs bear no comparison to members of club, which, by its very incorporation, is a grouping of individuals who have chosen to be members of a particular institution or club for fulfilment of certain human needs social, sporting, recreational etc. that cannot be fulfilled except in such organised collectives. Moreover, if we consider the understanding these VCFs in common parlance, it would be clear that no common man considers these VCFs to be like clubs. Such common understanding cannot be wished away.

++ We find that these trusts are VCFs and are not Trusts as such to draw the analogy of different cases cited. We find that each case rests on its own facts and comparison of cases and following the ratio when facts are not comparable would lead to bizarre results. [Al Noori Tobacco Products ( 2004-TIOL-85-SC-CX ) relied upon] [para 37.7]

Whether the appellants Rendered Taxable Services

++ 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 the distribution of dividend/profit to entities other than subscribers. They received the amounts in the form of dividend/profit and held the same in Escrow accounts to be distributed later to the AMCs and their nominees (Class-C Investors) at their discretion.

++ As an example, general public may invest their money in the banks, which in turn may invest certain amounts in other entities or concerns for further managing the funds. The argument that the banks need not pay service tax as the entities where they are further investing their monies are paying service tax. In a typical commercial activity various entity in the chain of activity needs to pay service tax and the subsequent entity may however, avail the credit of tax paid by the preceding entity. As long as the Trusts are performing the taxable services, they are liable to pay service tax. It has been demonstrated above by the learned Special Counsel for the Department and also found by us that the funds are managing the money invested by Subscribers/ Contributors/ Investors. [para 40.1]

++ We find that Senior Vice-President, Finance, ICICI Venture Funds Company Ltd. in his statements accepted that the Trustee shall manage such Trust Fund/ property held by the Trustee on behalf of the Trust in accordance with the indenture of Trust instrument for the benefit of contributors; the responsibilities/ duties of fund management towards contributors primarily relies with the Trustees on behalf of the Trust in line with the indenture of Trust instrument until subsequently delegated to the Asset Management Company by virtue of Investment Management Agreement and that the fund is engaged in Asset Management. Therefore, there is no doubt in our minds that the Trust is managing the funds of the contributors and thereby are rendering a service to the contributors and the said service squarely falls under Asset Management as applicable under Banking and Other Financial Service. Regarding the remuneration for the service, we find that the remuneration is not charged to the contributors but is retained from the amounts that are duly distributable to Subscribers/ Contributors/ Investors. [para 40.2]

++ 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. Case before us is limited to whether or not the Trusts in question were rendering taxable services to the Subscribers/ Contributors/Investors. In view of our discussion above, the answer is in affirmative. [para 40.3]

++ In view of the above discussion, it is evident that the appellant trusts have performed commercial operations/functions i.e. an economic activity. The concept of trust is only a façade. [para 40.4]

++ Not only the definition of the terms but the activities themselves of the trusts should be understood in common parlance. In common parlance, these funds are to be understood as Venture Capital Funds (VCFs).

++ 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. [para 40.5]

++ The appellant's Trusts are managing Venture Capital Fund and not the mutual funds therefore the Circular [ Circulars No. 94/5/2007-Service Tax dated 15.05.2007 and Circular No. 96/7/2007-ST dated 23.08.2007] is not applicable. [para 40.6]

++ 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 86/04/06 is not applicable in the instant case. [para 40.7]

Quantification of Demand

++ 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 liability and responsibility of managing the Trust/Fund rests with the appellants. Any amount retained out of income distributable to subscribers is nothing but charge or fee for the services rendered. We find that it is nothing but gross consideration in service tax parlance. [para 43.2]

++ Appellants have devised the structure of the fund in such a manner that the AMC and/or their nominees would get huge sums of money in the guise of Performance fee, carried Interest, with the twin motives of benefitting the AMC and/or their nominees at the expense of the subscribers and avoiding the taxes. The fact that the AMC, Settlors and Trustees are all ICICI Group concerns would further give credence to the inference. It is also seen the roles of different companies are rotated. One company is AMC in one Trust and a settlor in other funds. Thus we find that service tax has been rightly demanded on the amounts shown as performance fee, carried interest and other expenses. The appellants have taken a plea that some of these are expenses which are reimbursed. However, it is alleged in the Show Cause Notice dated 22-10-2010 that such expenses are not reflected in the Revenue expense for the year 2006-2007. [para 43.3]

++ 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. [para 43.4]

Limitation

++ It cannot be argued that suppression cannot be alleged as the information is in the public domain. Information being in the public domain is not of any consequence. The information should be in the knowledge or made available to the authorities concerned who need to take a certain decision depending on such information.

++ It is not the case of the appellants that they have been paying applicable service tax on getting registered and have been submitting regular returns to service tax authorities.

++ It is not the case of the appellants that the material information available in the form of various contracts/ agreements and balance sheets/ ledgers have been submitted to the Department suo moto by the appellants. 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.

++ In view of the discussions, we find that the Department was in its right to invoke the extended period for the issue of SCN. [para 46]

Penalties

++ Appellants have not obtained registration; have not paid applicable service tax and have not filed due returns. Therefore, we find that penalty under Section 77 is imposable.

++ Extended period is invokable; material facts have been deliberately suppressed by the appellants before the jurisdictional service tax authorities. Therefore, imposition of penalty under Section 78 of the Finance Act, 1994 is justified. [para 48]

Revenue Neutrality

++ Payment of service tax by one entity and availment of CENVAT credit by another entity on the basis of such payment is not a criteria to determine the exigibility of a particular service rendered. The argument goes against the general scheme of service tax and CENVAT credit.

++ If one entity has to pay service tax, it has to pay the same notwithstanding the fact that credit will be availed by a subsequent user. The scheme of CENVAT credit is to lessen the cascading effect of taxation and cannot be a reason for not paying taxes. Appellant's submissions on revenue neutrality are not convincing. [para 50]

++ Bench is inclined to allow the request of the appellants for re-calculation of the gross value of the taxable services; availability of CENVAT credit and cum duty benefit. For achieving the above object, the issue needs to go back the adjudicating authority for computation of the same. [para 50.1]

Matter remanded: BANGALORE CESTAT

2021-TIOL-358-CESTAT-CHD

Deep Enterprises Vs CCE & ST

ST - The company was owned by Late Shri Kuldeep Singh who started the business of cable operator in October 2009 but unfortunately, he expired on 01.03.2014 - Thereafter, a SCN was issued to the appellant for period October 2009 to February 2014 to demand service tax on cable operator services - Demand of service tax was confirmed along with interest and penalty - The said order was challenged by appellant firm through his son - There is no provision in law till yet that in case of death of proprietor of the firm who will be liable to pay the dues thereof - The said issue has been settled by Apex Court in the case of Shabina Abraham wherein it is held that in case of death of proprietor of the firm, no liability can be fastened on the legal heir for the period till the lifetime of the proprietor - No demand of service tax can be fastened on the son of late Shri Kuldeep Singh for the period October 2009 to February 2014: CESTAT

- Appeal allowed: CHANDIGARH CESTAT

2021-TIOL-357-CESTAT-DEL

Ahimsa Mines And Minerals Ltd Vs CCE & CGST

CX - The appellant had deposited excess cost recovery charges during the period 1999 to 2004 - In view of the instructions of Board vide letter dated 01.04.1991, it appeared to appellant that they have been subjected to excess cost recovery charges and are entitled to refund - The appellant filed a refund application before the Assistant Commissioner who determined the amount refundable and adjusted the same against cost recovery charges for the year 2004-05, although there was no amount due towards cost recovery charges for the year 2004-05, as the appellant had opted for MOT charges and had paid the same for the said year - The appellant had requested for a speaking order which was declined on the ground that adjustment of cost recovery charges is administrative in nature - On appeal, the Commissioner (A) allowed the refund - Thereafter, appeal travelled upto the High court but didnot get any refund amount or the interest - The High Court granted liberty to the appellant to apply for review or restoration of the writ application in case of difficulty, while disposing of the writ application on 04.05.2017 - Thereafter, when the appellant approached the High Court in review on Miscellaneous application for revival of the application, the High Court directed the appellant to pursue the appellate remedy in view of the subsequent O-I-O, (allowing truncated amount of refund) - Thus, limitation has to be computed on and from 06.10.2017 - Accordingly, appeal filed before Commissioner (A) was within time - Therefore, appeal is allowed by way of remand to the Commissioner (A) with the direction to hear the appeal on merits and pass a reasoned order after considering the earlier O-I-A, as well as the Final Order of this Tribunal dated 30.11.2005 and the other orders - Whatever amount is found refundable to the appellant shall be refunded forthwith within a period of sixty days alongwith interest @ 12% under Section 35FF from the date of deposit till the date of refund as held by Tribunal in case of Parle Agro Pvt. Limited 2021-TIOL-306-CESTAT-ALL - The appellant is also granted liberty to appear before Commissioner (A) and seek opportunity of hearing: CESTAT

- Matter remanded: DELHI CESTAT