Underwriting commission on Government securities falls outside taxable underwriting service under the Finance Act, 1994.

Underwriting commission earned in relation to Government securities was held not taxable as underwriting service under the Finance Act, 1994 because the relevant SEBI underwriting definitions apply to securities of a body corporate. Government securities are sovereign securities, and RBI merely manages their issue and auction on behalf of the Government of India. On that basis, the activity did not fall within the scope of taxable underwriting service, and the service tax demand was not sustainable.

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Issues: Whether underwriting commission received for dealing in Government securities is taxable as underwriting service under the Finance Act, 1994.

Analysis: The taxable service of underwriting under Section 65(105)(z) of the Finance Act, 1994 is linked to the meaning of underwriting and underwriter as understood from the Securities and Exchange Board of India (Underwriters) Rules, 1993. Those definitions contemplate securities of a body corporate. The circular relied upon clarified that Government securities are sovereign securities, that the Reserve Bank of India only manages their issue and auction on behalf of the Government of India, and that Government securities are not securities of a body corporate. On that basis, underwriting commission earned in relation to Government securities does not attract service tax.

Conclusion: The activity did not fall within taxable underwriting service, and the demand of service tax was not sustainable.

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