Trading In Securities Is Not A Service, No Service Tax Payable: CESTAT

The Chennai Bench of Customs, Excise and Service Tax appellate Tribunal (CESTAT) has held that the no service tax payable on trading in securities is not a service.

The bench of Sulekha Beevi.C.S. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that by making an investment, the appellant does not do any activity for another for consideration. The specific exclusion from the definition of'service' is given to transactions involving 'transfer of title in goods or immovable property by the way of sale'. Since trading in securities involves transfer of title in goods, the activity of 'trading in securities' cannot therefore be said to be a service.

The appellant/assessee is providing information technology software services and business support services. The appellant also avails of the facility of a cent credit of service tax paid on various input services.

During the course of the audit, it was noted from the annual reports of the taxpayer that they had engaged in trading of securities during the period from 2010-11 to 2014-15. The appellant had made investments in equity shares and mutual fund schemes. This is reflected in the annual reports of the appellant under the heading "Investments." These financial statements showed that the appellant had received proceeds from the sale of securities, and the amount was reflected under the schedule for 'other income' in their annual reports.

The Department was of the view that the appellant has earned profit from the activity of trading securities.

As per Rule 2(e) of the Central Credit Rules, 2004, which defines 'exempted services' from 01.04.2011, an explanation has been added that says 'exempted services' includes 'trading'.

The assessee contended that since trading of goods is listed in the 'negative list' of services, no service tax is leviable on 'trading of goods'. It implies that trading of goods continues to be an exempted service as per Rule 2(e) of Cenvat Credit Rules, 2004 even after 01.07.2012.

The department contended that the appellant has availed a cent credit of service tax paid on common input services such as banking and other financial services, Chartered Accountant Service, telecommunication service, security agency service, etc. used for providing taxable services (ITSS) as well as exempted services (trading of securities). The appellant had not maintained any separate account for receipt and use of input services used for taxable output services and exempted services. They had not paid any amount on the value of exempted services as stipulated under Rule 6(3)(i) of the Cenvat Credit Rules, 2004. So also, the appellant had not exercised any option to pay an amount as determined under Rule 6 (3A) of CCR 2004.

The issue raised was whether the demand confirmed alleging that appellant has availed common input services for taxable and exempted services (amount received from mutual funds/securities) is sustainable or not.

The court noted that the appellant has invested their income in shares/mutual funds and also sold certain investments. They have acted like any individual who would invest funds in shares or securities. The appellant is not engaged in the business of trading shares or securities.

The court, while allowing the appeal, held that the authorities below have grossly erred in demanding the tax on the 'investment' made by treating the it'service' although exempted and set aside the order.

Counsel For Appellant: Rajaram Ramanan

Counsel For Respondent: S. Subramaniam

Case Title: M/s. Cognizant Technology Solutions India Private Limited Versus The Commissioner of GST & Central Excise

Case No.: Service Tax Appeal No. 42491 of 2016

Click Here To Read The Order