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Issues: Whether the appellant was a "financial institution" within the meaning of section 45-I(c) of the Reserve Bank of India Act, 1934 so as to attract service tax on financial advisory services as banking and financial service.
Analysis: Liability under the relevant service tax entry arose only if the service provider was a banking company, a financial institution, or a non-banking financial company. The appellant was registered as a stock broker and merely bought and sold shares on behalf of clients. Such brokerage activity did not amount to carrying on the business of acquisition of shares, bonds, debentures, or similar securities for itself. Registration as a stock broker did not by itself make the appellant a financial institution, and there was no material to show registration as such under the Reserve Bank of India Act, 1934.
Conclusion: The appellant was not a financial institution within section 45-I(c) of the Reserve Bank of India Act, 1934, and the service tax demand and penalties could not be sustained.
Ratio Decidendi: A stock broker dealing in shares on behalf of clients is not a financial institution merely because it transacts in securities; the statutory definition requires the business of acquiring securities as its own business or part of its business.
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