2016 (11) TMI 1293 - AT - Service Tax

Demand - Stock Broker Services - Banking & Other Financial Services - Business Auxiliary Service - Held that - no service tax will be leviable on transaction charges in the hands of the stock broker Banking & Other Financial Services - delayed payment charges - Held that - delayed payment charges received by the stock brokers are not includible in taxable value as the same are not the charges for providing taxable services. Such charges are on account of delay in making payments by the service recipient to the service provider and are in the nature of a penal charge for not making the payment within stipulated time. Such amounts are not includible in the taxable value for charging Service Tax Business Auxiliary Service - incentive/ commission amounts received by the appellant towards services rendered as Registrar for IPOs - Held that - Such amounts have been charged to service tax under a new service, registrar to an issue w.e.f. 01/5/2006. In the impugned order such charges have been levied to service tax under Business Auxiliary Service for the period prior to 01/5/2006. We find no justification for such demands. It is fairly well settled that when a new service is introduced from a particular date, the same activity cannot be charged to service tax prior to that date. The only exception could be if the new service is carved out of an existing service - the service came into service tax net only with effect from 1-5-2006 and a demand to levy the service tax retrospectively under other categories such as Business Auxiliary Service is not justified. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Service tax demand under stock broker services for the period prior to 16/5/08.
2. Service tax demand under banking and other financial services on charges received for delayed payments by investors.
3. Service tax demand under business auxiliary service for commission related to Initial Public Offering of shares.

Analysis:

1. Stock Broker Services:
The appellant challenged a service tax demand of &8377; 28,07,537 under stock broker services for the period before 16/5/08. They argued that as transaction charges were taxed under stock exchange services from 16/5/08, no service tax should apply before that date. Citing a Tribunal case, they contended that transaction charges are distinct from commissions. The Tribunal held that transaction charges recovered by stock brokers from investors are not taxable under service tax as they are not considered commissions. The appeal was allowed on this ground.

2. Banking and Other Financial Services:
A demand of &8377; 71,92,261 under banking and other financial services was confirmed based on charges for delayed payments by investors. The appellant argued that such charges are not taxable under banking and financial services, referring to a CBEC circular. The circular clarified that delayed payment charges are penal in nature and not for providing taxable services, hence not includible in taxable value for service tax. The Tribunal set aside the service tax demand on this ground.

3. Business Auxiliary Service:
A demand of &8377; 28,818 under business auxiliary service was confirmed for commission related to Initial Public Offering of shares before 01/5/06. The appellant argued that such charges were taxable only from 01/5/06 under registrar to the issue services. Citing a Tribunal case, they contended that when a new service is introduced, the activity cannot be taxed before that date unless carved out from an existing service. The Tribunal agreed, setting aside the demand under business auxiliary service.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order and upholding only the admitted service tax amounts. The decision was based on the distinct taxability of transaction charges, the penal nature of delayed payment charges, and the principle that new services cannot be taxed retrospectively before their introduction.