TAXABILITY OF REGISTRAR TO ISSUE SERVICES

[Dr. Sanjiv Agarwal]

Service tax had been imposed on registrar to an issue services by the Finance Act, 2006 with effect from 1st May, 2006 vide Notification No. 15/2006-ST dated 25.4.2006. The gross amount charged or total consideration by Registrar to an issue to a person in relation to taxable services is chargeable to service tax.

Meaning of Registrar to an Issue [Section 65(89c)]

Section 65(89c) (as inserted by Finance Act, 2006) defines ‘registrar to an issue’ as under –

“registrar to an issue” means any person carrying on the activities in relation to an issue including collecting application forms from investors, keeping a record of applications and money received from investors or paid to the seller of securities, assisting in determining the basis of allotment of securities, finalising the list of persons entitled to allotment of securities and processing and dispatching allotment letters, refund orders or certificates and other related documents.

RTI is engaged by a company or body corporate and provides various services in respect of sale or purchase of securities. RTI should be registered with SEBI under SEBI (Registrar to Issue) Rules. These services include collection of application forms, keeping of records and assisting in allotment of securities. Issue would mean offer of sale or purchase of securities to or from the public or the holder of securities. Though the definition does not state so, intention appears to be that the service provider must be registered with SEBI (TRU Letter No. 334/4/2006-TRU dated 28.2.2006).

According to SEBI Rules, registrar to an issue means the person appointed by a body corporate or any person or group of persons to carry on the following activities on its or his or their behalf, namely —

(i) collecting applications from investors in respect of an issue,

(ii) keeping a proper record of applications and monies received from investors, and

(iii) assisting body corporate or person or group of persons in –

(a) determining the basis of allotment of securities in consultation with the stock exchange,

(b) finalising the list of persons entitled to allotment of securities,

(c) processing and dispatching allotment letters, refund orders or certificates and other related documents in respect of the issue.

Meaning of Issue [Section 65(59a)]

Section 65(59a) defines ‘issue’ as under —

“issue” means an offer of sale or purchase of securities to, or from, the public or the holder of securities.

Issue means an offer of sale or purchase of securities to, or from, the public or the holder of securities. The term issue shall mean all types of issues, i.e., public issue, right issue, bonus issue, offer for sale, reverse offers from investors in the form of buyback of shares, open offers, offers for delisting of securities etc. It will also include issues called initial public issues, follow-up public issues, new fund issues etc. The scope will cover all forms of securities as defined under Securities Contracts Regulation Act, 1956. Both purchase and sale of securities to and from public or holder of securities is included in the definition.

Meaning of Securities [Section 65(93)]

The term ‘securities’ means as defined in clause (h) of Section (2) of Securities Contracts (Regulation) Act, 1956.

As per section 65(93), securities would mean the same as contained in Section 2(h) of the Securities Contracts (Regulation) Act, 1956. Accordingly, it would include—

(i) shares, scrips, stock, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ii) derivatives;

(iii) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(iv) units or any other such instrument issued to the investors under any mutual fund scheme;

(v) security receipts under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(vi) government securities;

(vii) other instruments as declared by the Central Government to be securities;

(viii) any rights or interests in securities.

Securities will also include derivatives and collective investment schemes as included recently in the definition under Section 2(h) of the Securities Contracts (Regulation) Act, 1956.

A Government Security means a security created and issued, by the Central Government or a State Government for the purpose of raising a public loan.

Taxable Services

Section 65(105)(zzzi) defines taxable service as under —

Taxable service means any service provided or to be provided to any person, by a registrar to an issue in relation to sale or purchase of securities.

Taxable service means services provided to any person by a registrar to issue, in relation to sale or purchase of securities. These services include collection of application forms, keeping of records, and assisting in allotment of securities. Only services as stipulated would be covered and other services would not be taxed.

To be a taxable service, following tests must be satisfied –

(a) service must be provided by Registrar to an issue (RTI) registered with SEBI.

(b) service can be provided to any other person viz., any person or corporate entity.

(c) service provided should be in relation to sale or purchase of securities.

(d) service may be provided in any manner.

In CCE, Indore v. Ankit Consultancy Ltd. 2006 -TMI - 1411 - CESTAT, NEW DELHI, where the respondent were registered with SEBI as registrar to issue and share transfer agents (services brought under service tax w.e.f. 1.5.2006 only) and handled dematerialisation of securities under a well structured and codified agreement and SEBI regulation, it was held that such an activity does not amount to customer care/promotion/marketing of services incidental or auxiliary to support services. Also, if such a person handles preparation of a voter list on behalf of Chief Electoral Officer, such an activity is a part of sovereign activity of State and not a business activity with an eye on profit. In view of the fact that the Hon’ble Supreme Court in Bhaktawar Singh Balkishan v. Union of India & Others reported in (1988) 2 SCC 293 has held that maintaining the armed forces is part of the sovereign activity of the State and that it is specious to contend that it is a ‘business activity’ with an eye on profits, the activities of electoral machinery of the country also cannot be termed as a ‘business activity’.

In Karvy Consultants Ltd. v. CC & CE, Hyderabad II 2007 -TMI - 94566 - CESTAT, BANGALORE it was held that activity of transferring shares and handling of shares is not covered under business auxiliary service [Also see CCE & CC, Hyderabad II v. CIL Securities Ltd. 2007 -TMI - 1928 - CESTAT, BANGALORE,; Ankit Consultnacy Ltd. v. CCE 2006 -TMI - 1411 - CESTAT, NEW DELHI; Karvy Consultants Ltd. v. CC & CE, Hyderabad 2007 -TMI - 3858 - CESTAT, BANGALORE;].

In CCE & CC, Hyderabad II v. CIL Securities Ltd. 2007 -TMI - 1928 - CESTAT, BANGALORE, where assessee was providing stock broking and registrar and share transfer agency services to various companies and revenue proceeded to tax the same under business auxiliary services which was overruled in first appeal before Commissioner (Appeals), Tribunal held that since the assessee was already covered under stock broking services, for bringing them under business auxiliary services, they should promote marketing or sale of goods produced which was not the case. Thus, it was held that stock broking services could not be covered under business auxiliary services.

Value of Taxable Service

Mailing of letters etc. to investors is part of service rendered by share transfer agent. However, cost of postal stamps is to be borne by the client or body corporate and taxability would depend upon the agreement and nature of services rendered. If the client provides the stamps, there is no question of inclusion of such value for levy of service tax. If the client reimburses the cost, one will have to decide on the basis of valuation rules and subject to satisfaction of definition of pure agent. The inclusion or otherwise will have to be decided accordingly. However, there is no clarity on this issue, but in assessee, the actual mailing is undertaken by the postal department (i.e., services involved after handing over of packet to the post office till delivery to the addressee) against the postal charges charged by post office (i.e. value of stamps).

Person Liable

Any person providing registrar to issue services shall be person liable and treated as an assessee for service tax purposes.

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