Tribunal rules NSE/BSE charges not taxable under service tax law, clarifies brokerage fees subject to tax

The tribunal held that NSE/BSE transaction charges and SEBI turnover fees paid by stock brokers and subsequently recovered from clients are not liable to service tax under the category of stock broker service. Citing previous decisions and legal principles, the tribunal emphasized that these charges, being statutory and not retained by brokers, should not be included in the taxable value of brokerage services. The demand for service tax on these charges was deemed unsustainable, and the tribunal allowed the appeal, clarifying that only commission or brokerage fees should be subject to tax.

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Issues Involved:
1. Liability of NSE/BSE transaction charges and SEBI turnover fees to service tax under the category of stock broker service.

Detailed Analysis:

Liability of NSE/BSE Transaction Charges and SEBI Turnover Fees to Service Tax:

The primary issue in this case was whether the NSE/BSE transaction charges and SEBI turnover fees paid by stock brokers to the concerned agencies and subsequently recovered from their clients are liable to service tax under the category of stock broker service.

The tribunal noted that the appellant, a stock broker, had not paid service tax on amounts received as NSE/BSE transaction charges and SEBI turnover fees, which are integral to their services. The department argued that these amounts should be included in the taxable value of the stock broker service, as the appellant was charging and collecting these fees from their clients.

The tribunal referenced its own previous decision in the case of M/s Kunvarji Finstock Pvt Ltd, where it was held that similar NSE/BSE charges collected from clients of the stock broker need not be included in the gross value of the stock broker service. This decision was supported by various judgments, including those of the Supreme Court, which clarified that reimbursable expenses should not form part of the valuation of taxable services unless explicitly stated by the law.

Specifically, the tribunal cited the judgment in Intercontinental Consultants & Technocrats Pvt Ltd Vs. UOI, where the Supreme Court observed that Section 67 of the Finance Act, which deals with the valuation of taxable services, did not include reimbursable expenses until it was amended in 2015. This amendment was prospective and not retrospective, meaning that for periods before the amendment, such expenses could not be included in the taxable value.

Further, the tribunal referenced the case of Indses Securities & Finance Ltd, where it was held that charges such as NSE/BSE transaction charges, SEBI turnover fees, stamp duty, depository/demat charges, and security transaction charges collected by stock brokers and paid to respective authorities should not be included in the taxable value of brokerage and commission charges. The rationale was that these charges are collected separately as per statutory regulations and are not retained by the stock brokers.

The tribunal emphasized that the valuation provision in Section 67 of the Finance Act envisaged that only the aggregate of commission or brokerage should be the measure of tax. It was reiterated that there is no implied power to tax and that any charge beyond what is explicitly stated in the law would be arbitrary and without authority.

Based on these precedents, the tribunal concluded that the demand for service tax on NSE/BSE transaction charges and SEBI turnover fees by the lower authorities was not sustainable. The tribunal set aside the impugned orders and allowed the appeal, reaffirming that these charges are not liable to service tax under the category of stock broker service.

In conclusion, the tribunal's judgment clarified that NSE/BSE transaction charges and SEBI turnover fees recovered by stock brokers from their clients are not includable in the taxable value of stock broker services, aligning with established legal principles and previous judicial decisions.

(Pronounced in the open court on 10.09.2021)

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