2022 (12) TMI 975 - AT - Service Tax

Tribunal rules in favor of appellant on taxation issues, exempts various charges and commissions.

The Tribunal ruled in favor of the appellant on all issues. It held that CTCL charges and Depository charges are not taxable under service tax as they are ... Levy of service tax - various charges such as Computer to Computer Linkage charges, Commission on Public Issue and Inter Settlement charges - appellant acting as Stock Broking Company - HELD THAT:- In the light of decision of this Tribunal in M/S ANAGRAM STOCK BROKING LTD VERSUS COMMISSIONER OF SERVICE TAX, AHMEDABAD [2018 (10) TMI 641 - CESTAT AHMEDABAD] wherein the present appellant is also one of the appellants, has decided the same issue in their favour - it was held in the case that the allegation of the department that the demat charges collected by the brokers are banking and financial service, hence taxable, also devoid of merit in as much such charges are collected by the Appellant and paid to the depository participants viz. CDSL/NSDL who are authorised to levy such charges under the Depositories Act, 1996. The issue in hand is no longer res-integra - Appeal allowed. Issues Involved:1. Service Tax on CTCL charges and Depository Charges.2. Service Tax on income from distribution of Mutual Funds and Commission from Banks/Companies for investment in their Bonds.3. Service Tax demand on income from RBI Bonds.Detailed Analysis:(A) Service Tax on CTCL charges and Depository Charges:The Tribunal examined whether charges such as Computer to Computer Linkage (CTCL) charges and Depository/Demat charges should be included in the taxable value for service tax purposes. The Tribunal referred to its previous decision in the appellant's own case (Order No. A/11854-11858/2018 dated 09.04.2018) and other judgments, including Span Caplease Pvt Ltd and LSE Securities Ltd. It was established that these charges, collected separately and in accordance with statutory regulations, are not retained by the stock brokers but deposited with relevant authorities like the National Stock Exchange (NSE). Therefore, these charges cannot form part of the taxable value. The Tribunal reiterated that only the aggregate of commission or brokerage charged by stock brokers should be taxed, and no implied power to tax other receipts exists. Consequently, the Tribunal concluded that the CTCL and Depository charges are not in the nature of commission or brokerage and should not be included in the taxable value of services provided by stock brokers.(B) Service Tax on income from distribution of Mutual Funds and Commission from Banks/Companies for investment in their Bonds:The Tribunal addressed whether the income from distributing mutual funds and commissions from banks/companies for investment in their bonds should be subject to service tax. The appellant argued that the demand was initially raised under the category of banking and financial services but was confirmed under Business Auxiliary Service (BAS) in the adjudication order, which is beyond the show cause notice. The Tribunal noted this procedural discrepancy and found that the legal position on this issue is settled. The demand was based on Circular No. 66/15/2003-ST dated 05.11.2003, which was quashed by the Hon'ble High Court of Andhra Pradesh in Karvy Securities Limited, a decision affirmed by the Hon'ble Supreme Court. The Tribunal also referenced similar judgments, including CST, Delhi vs. ABN Amro Bank and P.N. Vijay Financial Services Pvt Ltd, which supported the appellant's position. Therefore, the demand for service tax on income from mutual funds and bonds was deemed unsustainable and set aside.(C) Service Tax demand on income from RBI Bonds:The Tribunal considered whether the commission received from the sale of RBI bonds should be subject to service tax. It referred to established precedents, including Enam Securities Pvt Ltd and HDFC Bank Ltd, which held that the RBI's borrowing activities are sovereign functions and not subject to tax. The Tribunal emphasized that the sale of RBI bonds is a government security transaction, and the brokerage received for such transactions is not taxable. The Tribunal cited clarifications from the RBI and CBEC, as well as judgments from Canara Bank and Union Bank of India, which reinforced that the sale of RBI bonds constitutes a sovereign function exempt from tax. Consequently, the demand for service tax on commission from RBI bonds was set aside.Penalties:Since the demands in the appeals were set aside, the penalties imposed based on these demands were also deemed unsustainable. The Tribunal noted that the penalties under Section 76 and Section 78 of the Finance Act, 1994, imposed in the original orders, were not justified given the set-aside demands. Therefore, the penalties were also set aside.Conclusion:The Tribunal concluded that the impugned orders were not sustainable and set them aside. The appeals were allowed, providing consequential relief to the appellant as per law. The decision was pronounced in the open court on 21.12.2022.