Securities is neither ‘goods’ nor ‘service’ :
Securities have been specifically excluded from definition of ‘goods’ and ‘service’ – see section 2(102) which defines ‘service’ and section 2(52) of CGST Act which defines ‘goods’.
Hence,’ supply of securities’ will not be subject to GST.
“Securities” shall have the same meaning assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956 – section 2(101) of CGST Act.
Section 2(h) of Securities Contracts (Regulation) Act, 1956 defines ‘securities’ as follows –
Securities – ‘Securities’ include – (i) Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate
(ia) Derivative
(ib) Units or any other instrument issued by any collective investment scheme to the investors in such schemes
(ic) Security Receipt issued by Securitisation Company, as defined in section 2(1)(zg) of ‘Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002’
(id) Units or other such instruments issued to investors under any mutual fund scheme Explanation – For the removal of doubts, it is herby declared that ‘securities’ shall not include any unit linked insurance policy or scrips or any such instrument or scrip, by whatever name called, which provides a
combined benefit of risk on life of persons and investment by such persons and issued by insurer referred in section 2(9) of Insurance Act (The explanation has been added w.e.f. 9-4-2010)
(ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity, which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be
(ii) Government securities
(iia) Such other instruments as may be declared by the Central Government to be securities; and
(iii) Rights or interest in securities. [section 2(h)]
In Sahara India Real Estate Corpn. Ltd. v. SEBI (2012) 115 SCL 478 = 25 18 (SC) it has been held that ‘security’ covers hybrid also. Optionally Fully Convertible Debentures (OFCD) is a ‘security’. These are debentures in presenti and shares in future.
In PCS Industries v. SEBI (2002) 35 SCL 939 (SAT), it was held that unit issued by mutual fund is a ‘security’, as definition of ‘security’ is an inclusive definition. Now, this has been specifically included in definition of ‘security’ w.e.f. 12-10-2004.
In Bhagwati Developers P Ltd. V. Peerless General Insurance (2013) 9 SCC 584 = 120 SCL 264 = 35 596 (SC), it has been held that shares of public limited company not listed on stock exchange are also ‘securities’. Transfer of such shares is covered under Securities Contracts (Regulation) Act, unless it is a spot delivery contract – confirming Bhagwati Developers P Ltd. v. Peerless General Finance and
Investment Co. (2005) 128 Comp Cas 444 (Cal HC). A security is ‘marketable’ only if it is permitted to be sold and purchased in any stock exchange. [Some judgments quoted in Gramercy Emerging Market Fund v. Essar Steels (2002) 39 SCL 435 (Guj HC) para 18, but the citations appear to be incorrect]. [This view is not valid in view of contrary Supreme Court decision]
Optionally fully convertible debentures (OFCDs) are ‘hybrid securities’and hence SEBI has jurisdiction regulate issue of such OFCD – Sahara India Real Estate Corporation Ltd. v. SEBI (2011) 110 SCL 217 = 14 141 (SAT) – view confirmed in Sahara India Real Estate Corpn. Ltd. v. SEBI (2012) 115 SCL 478 = 25 18 (SC).
Units in mutual funds is security and hence neither goods nor service – Units of mutual fund is included in definition of ‘security’.
Earlier, in some cases, it was held as ‘goods’.
In Geojit Financial Services Ltd. v. CCE (2007) 8 STR 390 (CESTAT), it was observed that SEBI has categorized mutual fund as ‘goods’ – following Aknam Finvest P Ltd. v. CCE (2007) 7 STR 267 (CESTAT).
In CCE v. P N Vijay Financial Services (2008) 17 STT 107 = 23 VST 31 (CESTAT) also, it has been held that unit of mutual fund is ‘goods’ as per section 2(7) of Sale of Goods Act – same view in CCE v. Yogesh J Shah (2014) 45 GST 493 = 45 137 (CESTAT).