2011 (9) TMI 826 - AT - Service Tax

Business Auxiliary Service - sub-broker - stock broker/sub-broker Held that - their activity cannot be said to be Business Auxiliary Service provided to the main broker. Since, the appellant have to be treated as a broker and the service provided by them is service of stock broker in connection with sale or purchase of securities listed on stock exchange for their clients and since during the period of dispute, it is the main broker who was issuing the transaction note and was receiving the commission from the client, a part of which was received by the appellant as a sub-broker, the question as to whether the part of brokerage received by the appellant as sub-broker from the main broker would attract service tax has to be answered in the light of the judgment on this issue in the case of Vijay Sharma & Co. (2010 - TMI - 78818 - CESTAT, NEW DELHI - Service Tax). - Matter remanded back.

Summary

Issues:
Interpretation of Sebi guidelines for sub-brokers and main brokers in the period from April 2005 to June 2006.
Taxability of Business Auxiliary Service under Section 65 (105) (zzb) of the Finance Act, 1994.
Validity of service tax demand, interest, and penalties imposed on the appellant.
Applicability of the definition of stock broker and sub-broker under Section 65 (101) of the Finance Act, 1994.
Consideration of the judgment of the Larger Bench of the Tribunal in the case of Vijay Sharma & Co. vs. CCE, Chandigarh.

Analysis:
The case involved a dispute regarding the application of Sebi guidelines to sub-brokers and main brokers from April 2005 to June 2006. The appellant, registered with Sebi as a sub-broker, was accused of providing Business Auxiliary Service taxable under Section 65 (105) (zzb) of the Finance Act, 1994. The dispute arose due to changes in billing procedures where only the main broker could issue bills for brokerage, leading to a service tax demand against the appellant. The Assistant Commissioner confirmed the demand, imposed penalties, and upheld by the Commissioner (Appeals), leading to the current appeal.

The appellant argued that their activities should not be considered Business Auxiliary Service as they were covered under the definition of a stock broker. They contended that the service provided was in connection with the sale or purchase of securities listed on a recognized stock exchange, falling under Section 65 (105) (a) of the Finance Act, 1994. The appellant relied on the judgment of the Larger Bench of the Tribunal in a similar case to support their position. They claimed that the main broker had already paid service tax on the gross amount of brokerage, negating the need for additional taxation on the sub-broker's commission.

The Departmental Representative defended the tax demand, stating that the appellant's activities amounted to marketing the services of brokers and should be taxed as Business Auxiliary Service. The Tribunal analyzed the definitions of stock broker and sub-broker under the Finance Act, 1994. It concluded that the appellant, being a sub-broker, fell under the definition of a stock broker and their activities were connected to the sale or purchase of securities on a stock exchange. The Tribunal emphasized the need to consider whether the main broker had paid service tax on the entire brokerage amount or only on the portion retained by them. As the impugned order did not discuss the relevant judgment of the Larger Bench of the Tribunal, the Tribunal set aside the order and remanded the matter to the Commissioner (Appeals) for a fresh decision in light of the precedent. The appeal and the stay application were disposed of accordingly.