BY TIOL News Service

MUMBAI, AUG 14, 2018: THE ISSUE BEFORE THE COURT is - Whether in terms of Rule 53(6)(b) of Maharashtra VAT Rules, proportionate disallowance of ITC to Mutual Fund Trust is allowed on account of gold which was resold after six months from date of purchase under Gold ETF scheme. And the answer is YES.

Facts of the case:

The asssessee-trust had returned income for the relevant AY. During the assessment proceeding, the AO noted that the a mutual fund was created by a trust deed made between the Axis Bank Limited (Settlor) and the assessee (Trustee company). Further, Axis Asset Management Company Limited (AMC) was incorporated alongwith the approval of SEBI to act as an Asset Management Company for the various schemes of the assessee. While going through the said trust deed, the AO found that the Settlor declared and agreed that the assessee would manage a mutual fund and the assessee was allowed to float one or more schemes for the issue of units to be subscribed by the public. The Ao also noticed that by way of an investment Management agreement executed between the assessee and Axis AMC, the responsibility for the daily operations of the schemes was assigned to the Axis AMC. The assessee submitted that by the Trust Deed, multiple schemes, were created and floated. The assessee had also maintained separate books and banks of accounts for each fund in compliance of the SEBI regulations. Accordingly, as per the Trust Deed, the Axis AMC had floated the Axis Gold ETF scheme. The Gold ETF scheme, an open-ended mutual fund scheme was designed returns which would closely track the the domestic spot price from physical gold in the spot market. The said scheme provided the investor with an option to invest in gold without taking physical delivery of the gold and such investor was also allowed choose to redeem the value of his investment either in cash or in the form of gold. It was then clarified by the assessee that no other schemes were floated by the Axis AMC involving the sale or purchase of goods liable to be taxed under MVAT Act, 2002. The AO believed that as per the terms of the scheme, Axis AMC had to purchase and sell gold based on subscription or redemption requests received from investors and the same was taxable under the MVAT Act, 2002. Subsequently, the AO also stated that the assessee was not eligible to claim ITC on purchase of goods since, the sale of such golds wre not resold within a period of six months from the date of purchase. Therefore, the AO passed an assessment order rejecting the ITC claim under Rule 53(6)(b). Consequently, a tax demand alongwith interest and penalty was levied on the assessee.

On appeal, the FAA confirmed the disallowance of ITC under Rule 53(6)(b) and interest u/s 30(3) however, dropped the penalty as imposed on the assessee.

The High Court held that,

++ this is not a case where the settlor has created more trusts under a single Trust Deed. This is a clear case where the Deed of Trust permits floating one or more schemes. That is not equivalent to creation of separate Trusts. It is in these circumstances that the AO, the FAA and the ITAT all rightly concluded that the set-off available under Rule 53 has to be reduced. It shall be accordingly in part or full in the event of any of the contingencies specified and to the extent specified in sub-rule (6) of Rule 53. Pertinently, the set-off has not been disallowed in full. It is hold that in the case clearly specified of gross receipts of a dealer in any year and if from that, receipts on account of sale are less than 50% of the total receipts, then, insofar as the dealer, who is not a hotel or restaurant, the set-off is permissible only on those purchases effected in that year where the corresponding goods are sold or resold within six months from the date of purchase. There is no creation of separate Trusts, but separate schemes under a single Trust Deed are floated;

++ none of the authorities were in any error nor their view can be termed as perverse while granting partial relief to the assessee. We do not see how the view taken by the FAA in the facts and circumstances peculiar to the assessee's case is perverse. We are of the view that the conclusion reached by the FAA is imminently possible. It is evident from the same that the assessee has obtained registration under the MVAT Act. It invested in the gold and disposed it of, may be on behalf of the customers. However, it paid VAT on it and was held liable to pay interest if the payment of VAT is delayed. Hence, the FAA has rightly concluded that the tax amount, together with interest is payable. He confirmed the demand to that extent. The ITAT also confirmed this view. It concurred with the AO and the FAA as both took a view on facts and on law, which is not perverse or vitiated by error of law apparent on the face of the record. In these circumstances, the disallowance of ITC under Rule 53(6)(b) was also confirmed and in our opinion is rightly.

(See 2018-TIOL-1600-HC-MUM-VAT)