2010 (4) TMI 570 - AT - Service Tax

Services provided by sub-brokers - sub-brokers are not liable to pay any service tax as the same has already been paid by the main stock broker - self same service provided shall not be doubly taxable - If service tax is paid by a sub-broker - same taxable service provided by the stock-broker - credit of the tax paid Held that - appeals are allowed by way of remand.

Summary

Issues:
1. Whether services provided by sub-brokers are covered under the ambit of service tax and are taxable or not?

Analysis:
The case involved three appeals directed to the Larger Bench by the Hon'ble High Court to decide whether services provided by sub-brokers are taxable under service tax laws. The High Court framed the question for the Larger Bench to resolve the conflicting decisions within the Tribunal. One view held that sub-brokers are not liable for service tax if the main stock broker has already paid it, while another view pointed out that the Tribunal overlooked the significance of the term 'in connection with' regarding sub-brokers. The High Court set aside the Tribunal's order due to conflicting decisions and remanded the case for fresh consideration.

The Revenue contended that sub-brokers are liable for service tax post-amendment, as they fall under the definition of 'stock broker' from 10-9-2004. The argument emphasized that if a sub-broker provides services similar to a stock broker and is registered under SEBI regulations, they qualify as service providers under the taxable category. The Revenue asserted that sub-brokers cannot claim exemption from service tax merely because the main broker paid it on their behalf without evidence to support such claims.

On the other hand, the assessees argued that sub-brokers should not be subject to double taxation as they act as agents to stock brokers. They contended that since the main stock broker has already paid the service tax, imposing tax liability on sub-brokers would lead to unjust discrimination. The assessees highlighted that sub-brokers had paid taxes to the main broker, who then fulfilled the tax liability, hence no loss was incurred by the Revenue. They emphasized that sub-brokers should not be unfairly targeted for taxation.

Upon hearing both sides and examining the records, the Tribunal clarified that sub-brokers are considered stock brokers under the Finance Act, 1994 post-amendment from 10-9-2004. Therefore, services provided by sub-brokers in connection with the sale or purchase of securities listed on recognized stock exchanges are taxable. The Tribunal emphasized that the service tax law does not permit double taxation and outlined the conditions under which a stock broker could claim credit for tax paid by a sub-broker. The Tribunal directed a remand to verify if stock brokers had paid service tax on behalf of sub-brokers and instructed to reduce the demand on sub-brokers accordingly, allowing all appeals by way of remand.