The Bombay High Court has directed the GST authorities to clarify, within eight weeks, the legal position on whether the mandatory pooling and utilisation of funds by the Association of Mutual Funds in India (AMFI) for industry-level investor education and awareness activities, pursuant to directions issued by the Securities and Exchange Board of India (SEBI), is liable to GST.
The Bench of Justice M. S. Karnik and Justice Sandesh D. Patil directed the department to clarify the legal position concerning the transaction and to place the issue before the GST Council in a time-bound manner.
The central issue before the High Court concerned the GST treatment of a transaction involving the mandatory pooling and utilisation of funds by AMFI for investor education and awareness at the industry level.
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According to the petition, the fund pooling and utilisation is undertaken pursuant to directions issued by SEBI. AMFI approached the Bombay High Court seeking a declaration that the transaction is not exigible to GST.
The petition therefore raised an important question concerning whether the mandatory contribution and subsequent utilisation of funds for a regulatory or industry-wide investor-awareness purpose can be treated as a taxable supply under the GST law.
AMFI’s primary prayer before the High Court was for a declaration that the transaction involving mandatory pooling and utilisation of funds for investor education and awareness was outside the scope of GST.
In the alternative, AMFI sought directions to the Union Government and the concerned authorities to clarify the legal position concerning the transaction and/or place the issue before the GST Council for consideration in a time-bound manner.
Thus, the proceedings were not limited to the question of AMFI’s individual tax treatment. They also raised the broader issue of obtaining an authoritative clarification on the GST implications of an industry-level mechanism implemented pursuant to SEBI directions.
During the hearing, counsel appearing for AMFI stated that the petitioner would be satisfied if the alternative prayer seeking clarification of the legal position was granted.
The GST authorities also indicated before the Court that the prayer could be considered and, if granted, the issue could be decided within a reasonable period.
This submission effectively narrowed the relief sought before the Court. Rather than requiring the High Court to itself conclusively determine the GST liability at this stage, AMFI agreed to pursue an administrative and policy-level clarification concerning the taxability of the transaction.
Taking note of the submissions, the Division Bench directed respondents Nos. 2 to 4 to undertake the necessary exercise within eight weeks from the date of communication of the Court’s order.
The direction is significant because it requires the concerned authorities not merely to examine AMFI’s representation but also to take the issue before the GST Council for consideration.
The Bombay High Court has not itself given a final ruling declaring the transaction taxable or exempt from GST. Instead, the Court has directed the competent authorities to undertake the clarification exercise and place the matter before the GST Council.
Consequently, the immediate outcome of the litigation is a direction for administrative and policy-level determination of the GST treatment of the transaction.
The Court’s order therefore leaves the substantive GST question open for consideration by the competent authorities and the GST Council.
At this stage, however, the Bombay High Court has not held that the transaction is outside the GST net. It has directed the competent authorities to clarify the legal position and place the issue before the GST Council within eight weeks.
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