1998 (10) TMI 2 - AT - Service Tax

Service Tax Stock Broker Transaction among broker of one exchange to a broker of another exchange does not convert the latter into an investor

Summary

Issues:
- Appeal against the demand of Service Tax, interest, and penalty imposed on a Stock Broker for not paying service tax on certain transactions involving the sale of shares to brokers from different stock exchanges.

Analysis:
1. The appeal was directed against the order demanding Service Tax, interest, and penalty from the Stock Broker under Section 68(3) and Section 73 of the Finance Act, 1994. The Commissioner of Central Excise, Kanpur imposed the demand and penalty on the grounds that the Stock Broker had not paid service tax for three transactions involving the sale of shares to brokers from different stock exchanges.

2. The appellant argued that Service Tax is only attracted for services provided to an investor, and Stock Exchange members should not be considered investors for the purpose of levy of Service Tax. The Stock Broker had initially collected Service Tax on the sales to the concerned brokers but later refunded the amounts upon realizing the correct legal position. The appellant contended that the transactions were not services provided to investors, and hence, the demand of service tax, interest, and penalty were unwarranted.

3. The Departmental Representative supported the impugned order, stating that service tax is not involved in transactions between brokers of the same exchange where no investor is involved. However, in transactions between brokers registered with different stock exchanges, an investor is involved, and service tax is applicable. The imposition of penalty was justified on the grounds of suppressing facts about brokerage collection and evading service tax payment.

4. Both sides presented written submissions outlining their arguments. The appellant reiterated that no service tax is attracted in transactions between brokers from different exchanges, citing examples from bills covering sales by brokers registered with other stock exchanges. The Departmental Representative referred to the bye-laws of the Uttar Pradesh Stock Exchange Association, emphasizing the distinction between members and non-members of the exchange to argue that a person not registered with a particular stock exchange is considered an investor.

5. Upon considering the submissions and perusing the record, the Tribunal analyzed Section 65(1) of the Finance Act, 1994, defining Taxable Service as service provided to an investor. The Tribunal held that when a broker sells shares to another broker, the latter cannot be treated as an investor. Therefore, transactions between brokers from the same exchange do not attract service tax, but transactions between a member of one exchange and a non-member broker from another exchange may be chargeable. The Tribunal disagreed with the department's justification, stating that charging brokerage does not convert a broker into an investor. Consequently, the impugned order demanding service tax, interest, and penalty was set aside, and the appeal was allowed.