Service tax - Show Cause Notices issued to various NSE Members of Association for recovery of Service Tax on Transaction charges of NSE, SEBI fees, DEMAT charges, Stamp Duty - reg. - Service Tax - F. No.187/107/2010-CX.4

F. No.187/107/2010-CX.4 Government of India Ministry of Finance Department of Revenue (Central Board of Excise Customs) New Delhi Dated: September17, 2010 Subject: Service tax - Show Cause Notices issued to various NSE Members of Association for recovery of Service Tax on Transaction charges of NSE, SEBI fees, DEMAT charges, Stamp Duty - reg. Kindly refer to your letter F. No.V/30-32/CCO/S. Tax/2009 dated 13.04.2010 on the subject mentioned above. 2. The matter has been examined and the views of DGST and Commissioners of Service Tax has also taken into consideration. Turnover charges, NSE/BSE/NSDL/CSDL transaction charges, DEMAT charges and SEBI fees that are recovered by the brokers from their clients are found to be includible in the taxable value for payment of service tax. The Security Transaction Tax (STT) and Stamp duty are not includible in the taxable value for charging service tax. 3. In the clarification issued from F. No.B1/4/2006-TRU dated 19.04.2006, it is mentioned at para 4.1.7 that "Value for the purpose of charging service tax is the gross amount received as consideration for provision of service. All expenditures or costs incurred by the service provider in the course of providing a taxable service forms integral part of the taxable value and are includible in the value. It is not relevant that various expenditure or costs are separately indicated in the invoice or bill issued by the service provider to his client". Para 4.1.8 states that "the service provider in the course of providing any taxable service may incur certain expenditure or cost as a pure agent of the client. The service provider seeks to exclude such expenditure or cost incurred by him as a pure agent of his client (generally known as reimbursable expenditure) from the value of the taxable services. It is also mentioned therein at para 4.1.10 that "Indication of different elements of the transaction in the invoice or bill could often be misleading. One has to carefully examine the exact legal nature of the transactions and other material facts before taking a view as to whether or not the expenditure sought to be excluded from the value is reimbursable expenditure. Not only the form, but also the substance of the transaction should be duly taken into account. Para 4.1.12 of the said letter mentions that the service provider who seeks to claim exclusion of certain value from the taxable value should also fulfill all the conditions specified in rule 5(2). 4. Since the Stamp duty and Security Transaction Tax, are the liability of the buyer/seller of securities and the broker pays the same acting as a Pure Agent the same are not includible in the taxable amount in terms of Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006. All other charges by whatever name called recovered by the broker from the buyer/seller of securities are includible in the taxable value in terms of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006. 5. From the above it is clear that in case the expense is the liability of the service provider it has to be included in the taxable value. In case it is the liability of the service receiver and the service provider pays the same acting as a pure agent then such amount is not includible in the taxable value. (Himanshu Gupta) Commissioner (Service Tax) CBEC, New Delhi.