Appeal partially allowed on service tax demand & penalty. Sub-broker income not taxable. Remand for further review.

The appeal by M/s. Kaynet Finance Ltd. against service tax demand and penalty imposition under Sections 76 & 78 of the Finance Act was partly allowed. The Tribunal ruled that income earned as a sub-broker before 10/09/2004 was not taxable. The demand related to brokerage income as a sub-broker was set aside. However, the issue of service tax on income under various heads in the balance sheet was not addressed in the Commissioner's order. The Tribunal remanded this aspect for further consideration by the Commissioner (Appeals). The judgment was delivered on 31/01/2018.

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Issues:
Appeal against service tax demand and penalty imposition under Section 76 & 78 of the Finance Act - Taxability of brokerage income earned as a sub-broker - Demand of service tax on various income heads in balance sheet.

Analysis:
The appellant, M/s. Kaynet Finance Ltd., appealed against the confirmation of service tax demand and penalty imposition. The appellant was alleged to have not declared/mis-declared total income from brokerage during specific years, leading to the demand of service tax. The appellant argued that the brokerage income, on which no tax was paid, pertained to income earned as a sub-broker. The contention was that sub-brokers were not taxable on such transactions until 10/09/2004. It was highlighted that services provided by sub-brokers were exempted from tax before 10/09/2004, as they were not considered stock brokers until the amendment on that date. The appellant also raised concerns regarding the demand of service tax on income under various heads in their balance sheet, such as penalty charges, insurance charges, NSE transaction charges, SEBI fees, stamp duty, and other charges. The Commissioner's order did not address this issue. The Assistant Commissioner relied on the impugned order.

The Tribunal referred to a previous case where it was established that a sub-broker fell under the definition of a stock broker from 10/09/2004 onwards. It was clarified that services provided by sub-brokers to investors were not taxable before this date. The demand related to brokerage received by the appellant as a sub-broker was set aside based on this clarification. However, regarding the demand of service tax on income under various heads, the impugned order did not provide any findings. Consequently, the Tribunal set aside the order on this issue and remanded the matter to the Commissioner (Appeals) for further consideration.

In conclusion, the appeal was partly allowed based on the Tribunal's findings. The judgment was pronounced on 31/01/2018 by the Tribunal.

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