CESTAT holds Venture Capital Funds liable to pay Service Tax on expenditure incurred in administration of fund and carried interest: Its impact on the PE fund management industry

The Customs Excise and Service Tax Appellate Tribunal (“Tribunal”), Bangalore bench vide order dated 1 July 2021 in ICICI Econet and Internet Technology Fund v Commissioner of Central Tax [Service Tax Appeal No 2900 of 2012] confirmed service tax liability on expenses incurred by a venture capital fund (“VCF”) incorporated as a trust, as consideration received towards asset management services. Disbursement of “carried interest” to the Asset Management Company (“AMC”) and other expenses incurred by the VCF in the course of its operations, have also been characterized as service income of the trust.