Buying/selling of securities by a member of one stock exchange through a member of another stock exc - Service Tax - 10/04/96

Buying/selling of securities by a member of one stock exchange through a member of another stock exchange on behalf of an investor- application of service tax-clarification-reg.. SERVCIE TAX CIRCULAR NO 10/4/96 DATED -17-04-1996 Representations have been received by the Board by various quarters for clarifications whether Service Tax is chargeable at both the ends when an investor is provided with taxable service by two brokers of different exchanges. The situation envisaged is as follows: If a Calcutta based investor buys a security quoted on the Bombay Stock Exchange through his broker in Calcutta, he ends up paying Service Tax twice, first to the Bombay Stock Exchange broker through broker and then to the Calcutta Stock Exchange broker whom the initial order was placed. In a situation like this, it has been represented that it amounts to double taxation on a transaction of one single security. The matter has been considered by the Board. According to Section 66 of the Finance Act, 1994, the Service Tax is to be charged at the rate of 5% of the "value of taxable service", in respect of sale and purchase of securities, taxable service means any service provided to an investor by a stockbroker in connection with the sale or purchase of securities listed on a recognized stock Exchange. The valuation of a taxable service in relation to service provided by a stockbroker to an investor shall be the aggregate commission or brokerage charged by him on the sale or purchase of securities. In the situation pointed out above, the investor is provided with taxable service by two brokers. First by the Bombay Stock Exchange broker through the Calcutta Stock Exchange broker and then by the Calcutta Stock Exchange broker. Since the commission/brokerage is charged at both the ends, the charge of service tax at both the ends is both conceptually and legally correct. The investor places his order for buying security quoted at the Bombay Stock Exchange for the reason that either it is not available at the Calcutta Stock Exchange or the price is more advantageous at the Bombay Stock Exchange. It is open to the investor to either place his order on the Bombay Stock Exchange broker direct or through his Calcutta stock exchange broker. In the former case, he would have to pay service tax only on the service provided by the Bombay Stock Exchange broker. In the latter case, he pays higher commission paid to him by the Calcutta Stock Exchange broker which includes the brokerage of the Bombay Stock Exchange broker also for the service provided to him at both the exchanges through the Calcutta Stock Exchange broker. It cannot, therefore, be said that the investor is paying Service Tax twice. The investor in fact pays double commission for avoiding the hassles involved in going to the Bombay Stock Exchange broker direct. The service tax being the percentage of the brokerage charged from the investor, there is not double taxation involved. Service Tax charged is only incidental to the charging of the commission/brokerage charged by the brokers. It is, therefore, clarified that charging of service tax from an investor who is provided with taxable service by two brokers of different stock exchanges does not amount to double taxation. Trade and field formations may be informed accordingly