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Case details: ICICI Econet Internet and Technology Fund v. Commissioner of Central Tax, Bangalore Bench - [2021] 128 taxmann.com 281 (Bangalore - CESTAT)

Judiciary and Counsel Details

• • S.S. Garg, Judicial Member, and P. Anjani Kumar, Technical Member.
  • Vikram Nankani, Sr. Adv. for the Appellant. 
  • P.R.V. Ramanan, Spectral Counsel, AR for the Respondent.

Facts of the Case

The appellants were Venture Capital Funds (VCF) established as a trust under Indian Trusts Act, 1882, and registered with SEBI. The appellants’ properties (i.e, money contributed by investors) were held in trust for benefit of beneficiaries, who were contributors to Funds (Contributors/Beneficiaries). The department launched investigation into taxability of services rendered by appellant Fund under entry ‘Banking and other financial services’ in section 65(12).

The investigation resulted in issue of series of notices demanding service tax on said activities, which were confirmed by adjudicating authority. The appellant submitted that service tax was not payable as it was not providing any taxable services. It was submitted that to levy service tax, there must be a service, but in this case service tax can’t be levied and filed appeal.

CESTAT Held

The honorable CESTAT found that appellant had been performing commercial operations/functions i.e. an economic activity and concept of trust was only a façade. It was found that appellant trusts were mutual funds engaged in Portfolio management and had violated principles of mutuality by concerning themselves in commercial activities and by using discretionary powers to benefit a certain class of investors or nominees or employees or subsidiaries and thus could no longer be treated as trusts for purposes of taxation statutes.

The appellants had discretion over distribution of dividend/profit to entities other than subscribers and had devised structure of fund in such a manner that AMC and/or their nominees would get huge sums of money in guise of Performance fee, carried Interest, with twin motives of benefitting AMC and/or their nominees at expense of subscribers and avoiding taxes. Thus, funds although named trusts, had been initiated with a profit motive, and activities were akin to those of a Bank or financial Institution. Therefore, the trust was managing funds of contributors and thereby rendering service to contributors and this service squarely fell under Asset Management as applicable under Banking and Other Financial Services and therefore service tax will be leviable on amounts shown as performance fee, carried interest and other expenses.

Case Review

• • Paramount Biotech Industries v. Union of India [2004] 49 SCL 77 (All.) (para 37.5)
  • Bangalore Club v. CIT [2013] 29 taxmann.com 29/212 Taxman 566/350 ITR 509 (SC) (para 37.7)
  • Yum Restaurants (Marketing) (P.) Ltd. v. CIT [2020] 116 taxmann.com 47/271 Taxman 217/424 ITR 630 (SC) (para 37.6)
  •  CCE v. Alnoori Tabacco Products 2004 taxmann.com 563 (SC) (para 37.7)
  • CCE v. Steel Industries Kerala Ltd. 2005 (188) ELT 33 (Tri. Bang.) (para 46)
  • CCE v. First Flight Courier Ltd. [STA No. 48 of 2010, dated 28-1-2011] (para 47.1)
  • Opus Media and Entertainment v. CCE [2008] 16 STT 39 (CESTAT – New Delhi) (para 47.1)
  •  CST & STC v. Motor World [2012] 22 taxmann.com 35/36 STT 48 (Kar.) (para 48)
  • Formica India Division v. CCE 1995 taxmann.com 415 (SC) (para 50)
  • Dineshchandra R. Agrarwal Infracon (P.) Ltd. v. CCE [2010] 26 STT 224 (Ahd. – CESTAT) (para 50)
  • Shah yarn Tax (P.) Ltd. v. CCE [Final Order Nos. 953 & 954 of 2008, dated 5-9-2008] (para 50)
  • Shah Yarn Tax (P.) Ltd. v. CST [Misc Appeal Nos. 2576-2577 of 2015, dated 29-1-2016] (para 50)
  •  Ok Play India Ltd. v. CCE [Appeal No. E/773/2007, dated 31-7-2017] (para 50)
  • CCE & C. v. Advantage Media Consultant [2008] 14 STT 483 (Kol – Trib.) (para 50) followed.
  • Gujarat State Fertilizers & Chemicals Ltd. v. CCE [2016] 76 taxmann.com 357/59 GST 240 (SC) (para 35.7)
  • CCE v. Alcobex Metals 2003 taxmann.com 1707 (SC) (para 45.1)
  • Gateway Hotels 2020 (37) G.S.T.L. 210 (Tri. – Bang.) (para 46) distinguished.

List of Cases Referred to

• • State of West Bengal v. Calcutta Club [2019] 110 taxmann.com 47/76 GST 614 (SC) (para 2.1)
  • Homi Nariman Bhiwandiwala v. Zoroastrian Co-operative Credit Bank Ltd. AIR 2001 Bom 267 (para 4)
  • Atmaram Ranchhodbhai v. Gulamhusein Gualm Mohiyaddin AIR 1973 Guj 113 (para 4)
  • Venkatesh lyer v. Bombay Hospital Trust Manu/MH/0198/1998 (para 4)
  • National Thermal Power Corpn. v. Canara Bank 2008 (1) CTLJ 251 (Delhi) (para 4)
  • Duli Chand v. Mahabir Pershad Trilok Chand Charitable Trust AIR 1984 Delhi 144 (para 4)
  • Abraham Memorial Education Trust v. C. Suresh Babu [Crl. O.P. Nos. 12630 & 12661 of 2012, dated 7-8-2012] (para 5)
  • Jogendra Nath Shiromani Gurdwara Prabandhak Committee v. Som Nath Dass Manu/SC/0219/2000 (para 5.1)
  • Bihar Alloys Steels v. State of Bihar Manu/BH/0150/1996 (para 7.2)
  • Anjaney Ferro Alloys Ltd. v. State of Jharkhand Manu/JH/0335/2012 (para 7.3)
  • India Advantange Fund II [Appeal No. ST/1651/2012] (para 7.6)
  • Jt. CTO, Harbour Division v. Young Men’s Indian Association Manu/SC/0472/1970 (para 8)
  • Saturday Club Ltd. v. Asstt. CST [2005] 1 STT 64 (Cal.) (para 8)
  • CST v. Delhi Gymkhana Club Ltd. [2009] 18 STT 227 (New Delhi – CESTAT) (para 8)
  • Bowring Institute v. CCT [Final Order No. 21293 of 2019, dated 2012-2019] (para 8)
  • CCT v. Karnataka Golf Association [ST Appeal No. 947 of 2009, dated 17-2-2020] (para 8)
  • CST v. Shobha Developers Ltd. [C.E. A.No. 45 of 2015, dated 4-3-2020] (para 8)
  • Bangalore Club v. CIT [2013] 29 taxmann.com 29/212 Taxman 566/350 ITR 509 (SC) (para 8.1)
  • CIT v. Madras Race Club [1976] 105 ITR 433 (Mad.) (para 8.2)
  • Yum Restaurants (Marketing) (P.) Ltd. v. CIT [2020] 116 taxmann.com 374/271 Taxman 217/424 ITR 630 (SC) (para 8.6)
  • CCE v. Alnoori Tabacco Products 2004 taxmann.com 563 (SC) (para 8.6)
  • CCE v. Ramesh Food Products [2015] 15 SCC 132 (para 8.6)
  • Madras Fertilizers Ltd. v. Asstt. Commissioner (Assessment) 1994 taxmann.com 2392 (Ker.) (para 11)
  • Food Corpn. of India v. State of A.P. [1999] 115 STC 148 (AP) (para 11)
  • Shiridi Sainadh Industries v. Dy. CST (IT) [2020] 122 taxmann.com 25/[2021] 83 GST 566 (AP) (para 11)
  • Intercontinental Consultants & Technocrats (P.) Ltd. v. Union of India [2012] 28 taxmann.com 213/38 STT 75 (Delhi) (para 11.1)
  • Union of India v. Intercontinental & Consultants Technocrats (P.) Ltd. [2018] 91 taxmann.com 67/66 GST 450 (SC) (para 11.1)
  • ASL Motors (P.) Ltd. v. CCE & ST [2008] 17 STT 83 (Kol. – CESTAT) (para 11.2)
  • N.M. Goel & Co. v. STO 1990 taxmann.com 1352 (SC) (para 11.2)
  • K V Nagarajan v. Dy. CTO 2007 (208) ELT 165 (Mad.) (para 11.2)
  • Saint Gobain Glass India Ltd. v. CCE & ST [Final Order No. 41528 of 2016, 8-9-2016] (para 12)
  • CCE & C. v. Advantage Media Consultant [2008] 14 STT 483 (Kol. – CESTAT) (para 13)
  • Pratibha Processors v. Union of India 1996 taxmann.com 72 (SC) (para 13)
  • CCE v. Pepsi Food Ltd. [Civil Appeal Nos. 1921-1923 of 2003, dated 10-12-2010] (para 14)
  • CCE v. Hindustan Petroleum Corpn. Ltd. 2017 (347) ELT 229 (Bom.) (para 14)
  • Pfizer Ltd. v. CCE & C 2009 (236) ELT 599 (Tri. – Ahd.) (para 14)
  •  CCE v. First Flight Courier Ltd. [STA No. 48 of 2010, dated 28-1-2011] (para 15)
  • Opus Media & Entertainment v. CCE [2008] 16 STT 39 (CESTAT – New Delhi) (para 15)
  • ETA Engineering Ltd. v. CCE 2004 taxmann.com 184 (New Delhi – CESTAT) (para 16)
  • Oriental Insurance Co. Ltd., In re 1998 (103) ELT 459 (Commer – Appeals) (para 16)
  • Addl CIT v. Mohammed & Sons [1985] 154 ITR 220/22 Taxman 492 (Raj.) (para 16)
  • CWT v. S.L. Khunna [1989] 180 ITR 340/46 Taxman 240 (para 16)
  • CCE v. Milan Tent Palace 2001 taxmann.com 1136 (CEGAT – New Delhi) (para 16)
  • CCE v. AB International [Appeal No. ST/227/2006, dated 28-5-2007] (para 16)
  • Formica India Division v. Collector of Central Excise 1995 taxmann.com 415 (SC) (para 17)
  • Dineshchandra R. Agrarwal Infracon (P.) Ltd. v. CCE [2010] 26 STT 224 (Ahd. – CESTAT) (para 17)
  • Shah Yarn Tax (P.) Ltd. v. CCE [Final Order Nos. 953 & 954 of 2008, dated 5-9-2008] (para 17)
  • Shah Yarn Tax (P.) Ltd. v. Commissioner Appeals [Civil Misc Appeal Nos. 2576-2577 of 2015, dated 29-1-2016] (para 17)
  • Ok Play India Ltd. v. CCE [Appeal No. E/773/2007, dated 31-7-2017] (para 17)
  • Paramount Bio-tech Industries Ltd. v. Union of India [2004] 49 SCL 77 (All.) (para 21)
  • Kala Sugar v. CST [2014] 42 taxmann.com 96/43 GST 554 (Mum. – CESTAT) (para 29)
  • Shree Ranee Gums & Chemicals (P.) Ltd. v. CCE [2017] 4 GSTL 340 (Tri – Delhi) (para 29.5)
  • Gujarat Tranvancore Agency v. CIT [1989] 44 Taxman 278/177 ITR 455 (SC) (para 30)
  • SEBI v. Sriram Mutual Fund [2006] 131 Comp Case 591 (SC) (para 30)
  • Asstt. CCE v. V. Krishna Poduval [2006] 3 VST 21 (Ker.) (para 30)
  • National Thermal Power Corpn. v. Canara Bank [1999] 22 SCL 119 (para 34.2)
  • Gujarat State Fertilizers & Chemicals Ltd. v. CCE [2016] 76 taxmann.com 357/59 GST 240 (SC) (para 35.6)
  • R.K. Garg v. Union of India [1998] 4 SCC 675 (para 37.5)
  • Mukesh Kumar Aggarwal & Co. v. State of M.P. 2004 (178) ELT 3 (SC) (para 40.5)
  • CCE v. Alcobex Metals 2003 taxmann.com 1707 (SC) (para 44.1)
  • CCE v. Steel Industries Kerala Ltd. 2005 (188) ELT 33 (Tri – Bang) (para 46)
  • Asstt. CCE v. Krishna Poduval [2006] 3 STT 96 (para 47.2)
  • CST & STC v. Motor World [2012] 22 taxmann.com 35/36 STT 48 (Kar.) (para 48)