2018 (10) TMI 641 - AT - Service Tax

Liability of service tax - Stock Broker - various charges/commissions/income - CTCL charges - depository service - commission from mutual funds - income from RBI bonds, Govt. securities, public issues under B.S.A. - commission from banks for promotion of their bonds - penalties. Service Tax on CTCL charges and Depository Charges - Held that - These charges relate to payments made by the appellant for the CTCL computer program. Such a program provides a single point trading access to equity, commodity and currency derivatives markets - The Depository/Demat Charges are levied by the Depository under Depositories Act, 1996. The appellants collect these charges from customers and pay the same to depository participants like CDSL or NSDL - Tribunal in the case of Span Caplease Pvt Ltd 2018 (2) TMI 569 - CESTAT AHMEDABAD held that such charges, which are collected separately and in accordance with various statutory bodies regulations and not retained by the stock brokers but deposited with the authorities concerned (e.g. National Stock Exchange), such charges cannot form part of the taxable value - aforesaid charges realized by the appellant are not in the nature of commission or brokerage and that being so; the same shall not form part of the value of taxable services - demand set aside. Service Tax on income from distribution of Mutual funds and Commission from Banks/Companies for investment in their Bonds - validity of SCN - Held that - The demand in the show cause notice has been raised in the category of banking and financial services whereas in the adjudication order, the same has been confirmed under Business Auxiliary Service (BAS), which is beyond the show cause notice. This fact has not been rebutted by the Ld. A.R. - otherwise also, the issue is settled in the case of CST, Delhi vs. ABN Amro Bank 2011 (1) TMI 69 - CESTAT, NEW DELHI , where iCommissioner has dropped the proceedings on the ground that the Circular dated 5.11.2003 of the Board which was the basis for issue of Show Cause Notice stands set aside by the Hon ble High Court of Andhra Pradesh - the demand of service tax on account of income from distribution of mutual funds and selling bonds issued by banks/companies is not sustainable and the same is set aside. Service Tax demand on income from RBI bonds - Held that - The issue of liability to pay the service tax on commission received from sale of RBI bonds is no longer res integra and has been settled by this Tribunal in favour of assessee in the case of Enam Securities Pvt Ltd 2014 (11) TMI 585 - CESTAT MUMBAI , where it was held that the lending or borrowing of money by the Government is a sovereign function and on such functions there cannot be any tax liability whether by way of direct tax or by way of indirect tax - the demand of service tax on commission received from sale of RBI bonds is not liable to service tax. Penalties on above also set aside. Appeal allowed - decided in favor of appellant.

Issues Involved:

1. Service Tax on CTCL charges
2. Service Tax on depository services
3. Service Tax on commission from mutual funds
4. Service Tax on income from RBI bonds, government securities, and public issues
5. Service Tax on commission from banks for promoting their bonds
6. Penalty under Section 76 of the Finance Act, 1994

Detailed Analysis:

1. Service Tax on CTCL Charges and Depository Services:

The appellant contended that CTCL (Computer-to-Computer Link) charges are for providing a single-point trading access to various markets, and these charges are merely reimbursements from customers for fees paid to the NSE. The Tribunal referred to the case of Span Caplease Pvt Ltd vs. CST, Ahmedabad, which held that such charges collected separately and paid to statutory bodies like NSE do not form part of the taxable value. The Tribunal reiterated that charges collected by brokers for services provided by statutory bodies and not retained by the brokers are not taxable. Consequently, the Tribunal set aside the demand for service tax on CTCL and depository charges.

2. Service Tax on Income from Distribution of Mutual Funds and Commission from Banks/Companies for Investment in Their Bonds:

The Tribunal noted that the show cause notice categorized the demand under banking and financial services, but the adjudication order confirmed it under Business Auxiliary Service (BAS), which was beyond the scope of the notice. The Tribunal cited the quashing of the relevant Board Circular by the Andhra Pradesh High Court in Karvy Securities Limited vs. UOI and its affirmation by the Supreme Court. The Tribunal also referred to the cases of CST, Delhi vs. ABN Amro Bank and CST, Delhi vs. P.N. Vijay Financial Services Pvt Ltd., which supported the appellant's position. Thus, the demand for service tax on income from mutual funds and bonds was set aside.

3. Service Tax on Income from RBI Bonds:

The Tribunal referenced the cases of Enam Securities Pvt Ltd and HDFC Bank Ltd, which established that the commission received from the sale of RBI bonds, being a sovereign function, is not liable to service tax. The Tribunal emphasized that RBI’s borrowing activities are on behalf of the Government of India, and thus, such commissions are not taxable. Consequently, the demand for service tax on income from RBI bonds was set aside.

4. Penalty under Section 76 of the Finance Act, 1994:

Given that the demands in the related appeals were set aside, the penalties based on these demands were also rendered unsustainable. The Tribunal noted that the penalties imposed under Section 76 in relation to the original order were not sustainable due to the setting aside of the primary demands. Therefore, the imposition of penalties under Section 76 was also set aside.

Conclusion:

The Tribunal concluded that the impugned orders were not sustainable and set aside the demands and penalties. The appeals were allowed, providing consequential relief to the appellant as per the law.

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