The Karnataka High Court collectively disposed of 31 Appeals through the same Judgment

The Karnataka High Court in a recent Judgment disposed of 31 Central Excise Appeals pertaining to the same subject matter. The High Court ruled that Trust Funds cannot be categorized as a ‘Juridical Person’ under the purview of the Indian Finance Act, 1994. The Appellant is a Venture Capital Trust that receives money from contributors, which is re-invested in other avenues upon the advice by an Investment Manager. The primary question sought to be addressed by the Karnataka High Court was whether the CESTAT had erroneously held the Appellant fund as a ‘juridical person’ instead of a ‘trust’ for the purposes of levy of ‘service tax’. Elevate Your Skills: Comprehensive Guide to Filing Audit Reports Counsel appearing for the Appellants in the Batch Appeal specifically referred to the appeal filed by India Advantage Fund II, a buyout trust fund functioning as a subsidiary of ICICI Venture Funds Management Co. Ltd., against an order passed by Customs Excise and Service Tax Appellate Tribunal ( CESTAT ). It was extensively submitted by the Department that investigation conducted by the Anti-Evasion Unit of the Jurisdiction Commissionerate had uncovered that the Assessee had retained some portion of the income it received from Contributors; such income was deemed to be ‘service charge/fee’ by the Commissionerate and called for the Assessee to pay Service Tax under the category of ‘Banking and Other Financial Services’ as per the provisions of Finance Act, 1994. The Assessee contended against the submissions of the Department stating that the Assessee Trust Fund was not covered within the definition of a ‘person’ under the Finance Act, 1994. Further submissions claimed that the Assessee, being a mere ‘pass-through’ intermediary does not receive any form of “consideration” from the Contributors in lieu of the Funds Invested and/or its Returns. The Division Bench of the Karnataka High Court presided by Chief Justice P.S. Dinesh Kumar and Justice Umesh M. Adiga observed that the Appellant is not liable to pay service tax as the assessee is not a ‘person’ and functions as a mere ‘pass-through’. Meanwhile, the reimbursement received by the Assessee in the course of its operation was also determined to be exempt from Service Tax according to Section 5(2) of the Service Tax (Determination of Value) Rule, 2006. Elevate Your Skills: Comprehensive Guide to Filing Audit Reports The Karnataka High Court, while allowing the Appeals further mused on the ‘Doctrine of Mutuality’ to gauge the difference between the Contributors and the Fund as two separate legal entities for the purpose of taxation; in light of the findings, the Court held that the Trust and the Investors cannot be regarded as two separate entities as the Trust Fund utilizes the investments received by it to re-invest the same. Hence, in the absence of contradicting evidence, the Court upheld the Doctrine of Mutuality that “A person cannot make profit from self”.