2015 (2) TMI 351 - AT - Service Tax

Stock broker not financial institution under RBI Act. Appeal allowed, order set aside, appellant granted relief.

Parag Parikh Financial Advisory Services Ltd. Versus Commissioner of Service Tax, Mumbai

The Tribunal held that the appellant, registered as a stock broker, did not qualify as a financial institution under the RBI Act based on the specific ... Financial advisory services - Banking and financial service - Whether assessee be classified as Banking and financial service agent - Held that:- To fall within the tax net, the appellant has to be a banking company or a financial institution including a non-banking company. Obviously, the appellant is not a banking company or a non-banking financial company. As per the definition of 'financial institution' only when the appellant carries on business of acquisition of shares, bonds, debentures or securities issued by a Government or Local Authority or other marketable securities of a like nature, the appellant can be categorized as a financial institution. Merely because the appellant is registered as a stock broker with the SEBI, which is a statutory requirement the appellant cannot be considered as a financial institution. If that be so, all stock brokers dealing in shares/securities would be financial institutions which is a totally wrong interpretation of the statutory definition of a financial institution. There is also no evidence available on record to show that the appellant has been registered under the RBI Act as a 'Financial institution'. - Conclusion of the lower authorities that the appellant is a financial institution as defined in the RBI Act cannot be sustained. Accordingly, we set aside the impugned order - Decided in favour of assessee. Issues:Service tax demand on financial advisory services classified as 'banking and financial service' - Appellant's status as a financial institution under RBI Act - Imposition of penalties under sections 76, 77 & 78 of the Finance Act, 1994.Analysis:Issue 1: Service Tax Demand on Financial Advisory ServicesThe appeal challenged an Order-in-Appeal confirming a service tax demand of Rs. 2,37,711 against the appellant for the period from 01/04/2011 to 31/03/2012. The lower appellate authority classified the financial advisory services as 'banking and financial service,' holding the appellant liable for service tax, interest, and penalties under sections 76, 77 & 78 of the Finance Act, 1994. The appellant contended that they were registered as a stock broker with SEBI and not a financial institution as defined in the RBI Act.Issue 2: Appellant's Status as a Financial Institution under RBI ActThe appellant argued that they did not fall under the definition of a financial institution as per section 45-I(c) of the RBI Act, which includes activities like financing, acquisition of securities, insurance, etc. The appellant's services as a stock broker did not involve acquiring securities for themselves but on behalf of clients. They relied on a High Court decision stating that registration as an NBFC does not automatically entail service tax liability unless specific activities like receiving deposits/lending are undertaken.Issue 3: Imposition of PenaltiesThe Revenue, represented by the Superintendent (AR), supported the lower authorities' findings. However, the Tribunal analyzed the statutory definition of a financial institution and the appellant's registration as a stock broker with SEBI. It concluded that merely being registered as a stock broker did not make the appellant a financial institution under the RBI Act. The Tribunal found no evidence of the appellant being registered as a financial institution under the RBI Act, thereby setting aside the lower authorities' decision and allowing the appeal.In conclusion, the Tribunal held that the appellant, registered as a stock broker, did not qualify as a financial institution under the RBI Act based on the specific activities outlined in the statutory definition. The decision highlighted the importance of meeting the criteria set out in the law to determine the liability for service tax. The appeal was allowed, and the impugned order was set aside, providing the appellant with consequential relief as per the law.