2014 (4) TMI 588 - AT - Service Tax

Valuation - inclusion of Delayed Payment Charges (DPC) - Whether the DPC collected by the appellants from their clients in those cases where the appellants have already made payments to the Exchange but has not recovered the same from their clients, are required to be considered as a part of the value of the services, so as to levy the service tax in respect of the same - Held that - mandate of Section 67A of the Act is that it is only the commission/brokerage, which is liable to service tax and no other recovery made by the stock-broker can be held to be a part of the value of the service. The Tribunal very clearly observed that the receipts not in the nature of commission/brokerage should not be taxed in disguise. In as much as, we have already held that DPC is not a commission or a brokerage for sale/purchase of securities, as the same is not being collected from each and every customers but is relatable to only delayed payments by some of the customers, there is no justification for inclusion of the same in the value of the services. As is seen from the above, the DPCs recovered separately and shown separately in the invoices/bills cannot be held liable to payment of service tax. Admittedly, in the present case, such DPCs were being recovered by the appellants by issuing separate debit notes to their customers and by debiting the amounts in their running ledgers. As such, the clarification issued by the Board is fully applicable to the facts of the present case - appellants were maintaining all the records showing recover of said DPCs and were reflecting the same in their books of accounts as also in their balance-sheet. The Commissioner has invoked longer period only on the short ground that they have never disclosed the same to the Revenue and said non-payment of service tax is indicative of the assesses intention and motive to evade tax. However, we fail to understand that if the fact of non-payment of tax, by itself, can be made a ground by attributing mala fide to an assessee, the limitation period would never be applicable in any case of non-payment and the resultant confirmation of demand. In any case, Commissioner has also observed that it is possible to invoke extended period of limitation in the case of service tax even in a situation where there is nothing to evade payment of duty, in as much there is no requirement that suppression should with intention to evade - Decided in favour of assessee.

Summary

Issues Involved:

1. Taxability of Delayed Payment Charges (DPC) collected by the assessee from their clients.
2. Taxability of services provided by sub-brokers located in Jammu & Kashmir to their clients in Jammu & Kashmir.

Issue-wise Detailed Analysis:

1. Taxability of Delayed Payment Charges (DPC):

The appellants, registered members of various stock exchanges, provide on-screen and off-line trading services. They charge Delayed Payment Charges (DPC) from clients who delay payments. The Revenue contends that DPCs are part of the stock broking services and thus liable to service tax. The appellants argue that DPCs are penal charges for late payments, not related to stock broking services.

The Tribunal noted that DPCs are collected only from clients who delay payments and are not part of the stock broking services. The Tribunal referenced the agreement clause stating that overdue amounts are charged with DPCs, indicating that DPCs are penal charges for delayed payments, not for stock broking services. The Tribunal also cited the precedent in LSE Securities Ltd. Vs. CCE, Ludhiana, which clarified that only commission or brokerage is taxable under Section 67 of the Finance Act, 1994, and not other charges.

The Tribunal further referenced CBEC's letter dated 03.08.2011, which clarified that delayed payment charges are not includible in taxable value as they are penal charges for delayed payments. Since the appellants issued separate debit notes for DPCs, these charges are not subject to service tax.

The Tribunal also noted that the major part of the demand is barred by limitation. The appellants maintained records showing DPC recovery, and the Commissioner invoked the extended period of limitation on the grounds of non-disclosure. However, the Tribunal held that non-disclosure without mala fide intent does not constitute suppression.

2. Taxability of Services Provided by Sub-Brokers in Jammu & Kashmir:

The Revenue appealed against the Commissioner's order dropping the demand for services provided by sub-brokers in Jammu & Kashmir. The Commissioner concluded that services provided by sub-brokers in Jammu & Kashmir to clients in Jammu & Kashmir are exempt from service tax under Section 64 of the Finance Act, 1994. The Tribunal upheld this view, noting that service tax is a destination-based tax, and services provided in Jammu & Kashmir are exempt regardless of where the accounts are maintained.

The Tribunal referenced a Board Circular dated 17.08.2004, which clarified that service tax is a destination-based consumption tax, and services rendered in Jammu & Kashmir are not liable to service tax.

Conclusion:

The Tribunal set aside the demand for service tax on DPCs and upheld the exemption for services provided by sub-brokers in Jammu & Kashmir. The appeal by the assessee was allowed, and the appeal by the Revenue was rejected.