2007 (2) TMI 83 - AT - Service Tax

Service tax liability on sub-brokers for commissions found unjustified. Appeals allowed with relief granted.

The Tribunal found that the service tax liability on sub-brokers for commissions received from the main broker was not justified. The main broker had ... Stock broker service - service tax on commission of sub-brokers - levy in connection with the sale and purchase of securities - levy limited to stock brokers handling sale and purchase of securities on the stock exchange - sub-broker as distinct from commission agentStock broker service - service tax on commission of sub-brokers - sub-broker as distinct from commission agent - Whether the commission received by sub-brokers is liable to service tax as 'stock broker service'. - HELD THAT: - The appellants acted as sub-brokers who brought interested buyers to the main broker while the actual sale and purchase of securities on the Stock Exchange were effected by the main broker. The levy under the relevant Heading is in connection with the sale and purchase of securities and is targeted at stock brokers who handle such transactions on the exchange. Sub-brokers, in the facts of these cases, do not act as brokers effecting sale and purchase on the Stock Exchange but function akin to commission agents in the transaction. Consequently, the statutory levy does not extend to the commission of sub-brokers who do not themselves carry out the sale and purchase of securities on the exchange. The Tribunal therefore found no justification for imposing service tax separately on the sub-brokers' commission where the main broker handled the exchange transactions and paid tax on brokerage as a whole. [Paras 6, 7]Impugned orders confirming service tax on sub-brokers' commission set aside; appeals allowed.Final Conclusion: The Tribunal held that service tax under the stock broker Heading does not apply to sub-brokers who merely bring clients to the main broker and do not themselves handle sale and purchase on the Stock Exchange; the impugned orders were set aside and the appeals allowed. Issues:Service tax liability of sub-brokers for commissions received from main broker.Analysis:The appellants, acting as sub-brokers for a main broker, received commissions in connection with brokerage services. The service tax demands were confirmed against the sub-brokers on the basis that their commission is considered liable to service tax as 'stock broker service'. The main contention raised by the sub-brokers was that since the main broker had already paid service tax on the gross amount of commission received, there was no justification to impose a separate tax on the sub-brokers. It was also highlighted that in a similar case in another Commissionerate, a decision was made stating that sub-brokers' commission does not attract service tax.The learned SDR argued that sub-brokers are explicitly mentioned in the definition of Brokers/Stock brokers, indicating that the commission of sub-brokers is also subject to levy. However, upon reviewing the record and considering the arguments from both sides, the Tribunal found that the appeals needed to be addressed without requiring pre-deposits.The Tribunal analyzed the definition of the levy, emphasizing that it is related to the sale and purchase of securities. It was noted that in the present case, the main broker exclusively handled the sale and purchase of securities in the Stock Exchange, while the sub-brokers merely directed interested buyers to the main broker. Therefore, the levy was determined to apply only to the main brokers actively involved in the transactions at the stock exchange. Sub-brokers were deemed to be functioning more like commission agents rather than brokers in connection with the sale and purchase of securities. Consequently, the levy under consideration was deemed to be limited to stock brokers and not applicable to commission agents in general. As a result, the impugned orders were set aside, and the appeals of the sub-brokers were allowed with any consequential relief granted to them.