Top Stories Mutual Fund Investments Are Neither Trading Nor Service, But Non-Taxable Financial Activities: CESTAT in GMR Case [Read Order] CESTAT ruled that mutual fund investments are neither trading nor taxable services, but non-taxable financial activities outside the purview of service tax By Kavi Priya – On May 1, 2025 7:27 pm – 2 mins read The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that investment in mutual fund units does not constitute trading or a taxable service, but is merely a non-taxable financial activity falling outside the scope of service tax. M/s GMR Airport Developers Ltd., the appellant, had invested surplus funds in mutual fund units and availed CENVAT credit on common input services.

The department treated this activity as “trading in securities,” classifying it as an exempted service and demanding credit reversal or payment under Rule 6 of the CCR, along with interest and penalties. Read More: Justice B.R. Gavai to Succeed Justice Sanjiv Khanna as 52nd Chief Justice of India: Law Ministry Notifies The adjudicating authority recalculated and reduced the demand using Rule 6(3AA) and the department appealed, arguing this rule could not apply retrospectively. The appellant also appealed and argued that its activity was a financial investment, not trading or service. Worried About SME IPO Pitfalls? Gain Clarity with This Advanced Course! Register Now The appellant’s counsel argued that mutual fund investments involve neither transfer of goods nor provision of any service for consideration. Citing legal definitions and judicial precedents, they claimed the transactions were purely investment in nature and not covered under the tax regime. The department’s counsel argued that securities fall under the definition of goods and the activity should be treated as exempted service, warranting reversal of credit. Read More: Relief for Huawei: CESTAT Rules Corporate Guarantee not Taxable under Service Tax in Absence of Consideration [Read Order] The two-member bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) held that the appellant’s activity did not constitute trading since there was no transfer of goods or securities to third parties.

The tribunal also ruled that there was no “service” rendered by the appellant to the mutual fund, which meant the activity could not be taxed or even treated as exempted service. The tribunal observed that the explanations added to Rule 6 and Rule 2(e) of the CCR in 2016, which attempted to expand the definition of exempted service to cover non-service activities, could not be applied retrospectively. The tribunal ruled that mutual fund investments were purely financial transactions and could not be treated as taxable or exempted services. The tribunal further held that since the entire disputed credit had already been reversed with interest before the issuance of the show cause notice, no penalty could be imposed under Section 78 of the Finance Act, 1994. The tribunal allowed the appellant’s appeal, set aside the demands and penalties, and dismissed the department’s appeal.