2026-VIL-1354-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax on Profit from Investment in Venture Capital Fund Units – Demand under Banking and Financial Services - Classification of profit from venture capital fund investment - Appellant was a unit-holder Venture Capital Fund and received profit from sale of units held in the fund. Department sought to tax this profit as consideration for fund management services under Banking and Financial Services - Whether profit from investment in venture capital fund units can be taxable under banking and financial services on the basis of accounting nomenclature - HELD - A unit-holder receiving its rightful share of profits from a venture capital fund has not provided any fund management service for which such profit could be consideration. The appellant did not manage the funds of Adharshila Venture Capital Fund for this specific receipt, rather, the appellant was a unit-holder receiving its rightful share of profits - The nomenclature used in books of accounts cannot determine the taxability of a transaction. The profit was earned as a unit-holder receiving distribution from the fund upon its exit or valuation gain, not as a service provider managing the fund's assets. The revenue relied entirely on accounting nomenclature and the difference between ST-3 returns and audited financial statements to claim taxation but failed to produce any evidence of a taxable service provided by the appellant. The income earned by the appellant on the basis of differential figures between the books of accounts and ST-3 Returns, cannot form the taxable service provided by the appellant - The demand of service tax on profit from investment in Venture Capital Fund is set aside and no penalties are imposable on the appellant – The impugned order is set aside and the appeal is allowed - Intellectual Property Services - Royalty received for use of copyright - Statutory exclusion of copyright from intellectual property rights - Appellant received royalty from another entity for permitting use of computer software and website portal which were registered as copyright works. Department classified the royalty as taxable intellectual property service - Whether royalty for the use of copyright, which is statutorily excluded from the definition of intellectual property right, can be taxed as intellectual property service - HELD - The statutory definition of intellectual property right under Section 65(55a) of the Finance Act specifically states that it means any right to intangible property including trademarks, designs, patents or any other similar intangible property, but does not include copyright. The transaction involved granting of right to use registered copyright of a literary work which constitutes computer programme, which is a literary work under Section 13(1)(a) of the Copyright Act, 1957. The copyright was the essential character of the transaction for which royalty was paid at ten percent of gross revenues, while the trademark transfer was merely incidental with nominal consideration. Therefore, the royalty received for the use of copyright which is expressly excluded from the definition of intellectual property right cannot be taxed under intellectual property service - The demand is set aside - CENVAT Credit - Denial on technical grounds - Procedural defects in documentation - Appellant availed CENVAT credit on service tax paid by the suppliers for input services which were used for provision of output services. The credit was denied on technical grounds such as non-submission of documents, mismatch of addresses and invoices issued in the name of key managerial personnel - Whether substantive CENVAT credit can be denied merely on procedural or clerical discrepancies in invoices when the receipt of services, payment of tax by supplier and use for output services are not disputed - HELD - It is a well-settled principle that the substantive right to avail CENVAT credit cannot be denied due to curable procedural defects. The appellant had availed credit on payment of service tax by the supplier which is not disputed by the revenue. The services were received by the appellant for its business and were used for provision of output services. The invoices were in the name of the appellant's key managerial personnel but the receipt of services and payment of tax by the supplier and use for output services were not disputed by the revenue. Merely on technical grounds or clerical discrepancies, the substantive CENVAT credit cannot be denied when the material facts are not disputed - The credit is allowed - Limitation - Extended period of limitation - Invocation on basis of difference between returns and audited accounts - Whether the extended period of limitation can be invoked on the basis of difference between returns and audited financial statements - HELD - The extended period of limitation can only be invoked if the non-payment of tax is occasioned by fraud, collusion, wilful misstatement or suppression of facts with deliberate intent to evade payment of tax. The burden of proving such mala fide intent lies squarely on the revenue. In this case, the show-cause notice was issued on the basis of audit of books of accounts and scrutiny of profit and loss account. The invoices dated 31.03.2008 on which the demand was based were available in the financial report for the year 2007-2008 itself. No fresh material has been brought by the revenue to allege any suppression of facts with intention to evade tax. The demand of service tax cannot be confirmed merely on the difference between returns and audited accounts. The show-cause notice issued on 17.10.2012 is barred by limitation - Imposition of penalties under Section 77 and Section 78 of Finance Act, 1994 - Penalties under Section 77 and Section 78 were imposed on the appellant on the basis of the alleged short payment of service tax - Whether penalties can be imposed when the underlying demand of service tax is set aside - HELD - When the demand of service tax is not sustainable against the appellant, consequently, no penalties imposed on the appellant on the basis of that demand are also not sustainable. The penalties cannot be allowed to stand independently when the underlying demand on which they were based is set aside. Therefore, the penalties imposed under Section 77 and 78 of the Finance Act, 1994 are set aside.
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