2023 (8) TMI 793 - AT - Service Tax

Levy of Service Tax - Brokerage/Commission received towards the services relating to public issue of Equity Shares/Bonds - HELD THAT - The issue is no longer res-Integra as the identical issue related to the demand on commission received towards public issue of Equity Shares/Bonds has been decided in the favour of the assessee in various Judgments. Reliance can be placed in the case of EDELWEISS FINANCIAL ADVISORS LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE ST, AHMEDABAD 2022 (12) TMI 975 - CESTAT AHMEDABAD , where In the light of decision of this Tribunal in M/S ANAGRAM STOCK BROKING LTD VERSUS COMMISSIONER OF SERVICE TAX, AHMEDABAD 2018 (10) TMI 641 - CESTAT AHMEDABAD wherein the present appellant is also one of the appellants, has decided the same issue in their favour - It was held in the case that the allegation of the department that the demat charges collected by the brokers are banking and financial service, hence taxable, also devoid of merit in as much such charges are collected by the Appellant and paid to the depository participants viz. CDSL/NSDL who are authorised to levy such charges under the Depositories Act, 1996. In view of the above decision of this Tribunal, the issue that whether the consideration received towards the service relating to Initial Public Offering (IPO) of Shares/Bond is not liable to Service Tax under Business Auxiliary Services . The impugned order is not sustainable - Appeal allowed.

Issues Involved:
1. Liability for Service Tax on Brokerage/Commission related to public issue of Equity Shares/Bonds.
2. Service Tax on CTCL Charges and Depository Charges.
3. Service Tax on income from distribution of Mutual Funds and Commission from Banks/Companies for investment in their Bonds.
4. Service Tax demand on income from RBI Bonds.

Summary:

1. Liability for Service Tax on Brokerage/Commission related to public issue of Equity Shares/Bonds:
The primary issue was whether the appellant is liable for Service Tax on the Brokerage/Commission received for services related to the public issue of Equity Shares/Bonds. The Tribunal found that this issue is no longer res-integra, as it has been settled in favor of the assessee in multiple judgments, including Way 2 Wealth Brokers Pvt. Ltd Vs. CST, Bangalore, and A.K. Capital Service Ltd. Vs. CCE, Delhi-I. The Tribunal concluded that the service related to the Initial Public Offering (IPO) of Equity/Mutual Fund/Bond is not liable to Service Tax.

2. Service Tax on CTCL Charges and Depository Charges:
The Tribunal examined if CTCL Charges and Depository Charges should be included in the taxable value. It was found that these charges, collected separately and in accordance with statutory regulations, are not retained by the stock brokers but deposited with the concerned authorities, such as the National Stock Exchange. Therefore, they cannot form part of the taxable value. This was supported by the precedent set in Span Caplease Pvt Ltd.

3. Service Tax on income from distribution of Mutual Funds and Commission from Banks/Companies for investment in their Bonds:
The Tribunal noted that the demand for service tax under this head was beyond the show cause notice, as it was confirmed under Business Auxiliary Service (BAS) instead of banking and financial services. The legal position on this issue is settled, as the relevant circular has been quashed by the Hon'ble High Court of Andhra Pradesh in Karvy Securities Limited, affirmed by the Supreme Court. Therefore, the demand for service tax on income from distribution of mutual funds and selling bonds is not sustainable.

4. Service Tax demand on income from RBI Bonds:
The Tribunal held that the commission received from the sale of RBI bonds is not liable to service tax. This was supported by precedents in Enam Securities Pvt Ltd and HDFC Bank Ltd, which clarified that lending or borrowing by the Government is a sovereign function and not subject to tax liability.

Conclusion:
The Tribunal concluded that the impugned orders are not sustainable and set aside the demands for service tax and penalties. The appeal was allowed, following the established precedents and legal principles.

← Previous Next →