2023 (9) TMI 413 - AT - Service Tax

Tribunal rules NSDL and CSDL fees not taxable under service tax

Commissioner of Service Tax, Delhi II Versus Religare Securities Limited

The Tribunal upheld the Commissioner's decision, ruling that NSDL and CSDL fees are not subject to service tax. Additionally, the Tribunal determined that ... Non-payment of service tax - NSDL and CSDL fee paid to Depositories - tax on reverse charges basis on the expenses reimbursed to the representative liaison offices located outside India - delayed payment charges - services rendered to Jammu and Kashmir clients through its sub brokers in Jammu and Kashmir - Inadmissible CENVAT Credit on account of medical insurance of the employees of the respondent - HELD THAT:- It is true that the issue involved has been decided by the Tribunal in the aforesaid decisions and it has been held that the statutory charges such as NSDL and CSDL fee collected by the Depository Participants from customers and deposited with the Depositories (NSDL and CSDL) are not susceptible to service tax. These charges have a nexus or connection with the depository services and the respondent is not benefited out of collection of such fees as such fees are collected and deposited with the depositories. This is what has been held by the Tribunal in SAURIN INVESTMENTS PRIVATE LIMITED VERSUS C.S.T. -SERVICE TAX – AHMEDABAD [2023 (1) TMI 454 - CESTAT AHMEDABAD] and LSE SECURITIES LTD. VERSUS CCE [2012 (6) TMI 364 - CESTAT, NEW DELHI]. It is not possible to accept the contention advanced on behalf of the department that the circular dated 23.08.2007 is retrospective in nature. The said Circular supersedes all the past Circulars, clarifications and communications on all technical issues. The said Circular brought certain transaction within the ambit of the service tax - the Circular dated 23.08.2007 is oppressive in nature and it is a settled principal of law that an oppressive Circular should be given only prospective effect. Reimbursement of the expenses incurred by the representative offices located outside India - HELD THAT:- The reimbursement of the expenses incurred by the representative offices located outside India with respect to rent, professional services, salaries of employees can by no stretch of imagination be equated as consideration to any service rendered to the respondent by the representative offices. Therefore, the reimbursements made to representative offices located outside India is not leviable to service tax. The Commissioner has relied upon the decision of the Tribunal in M/S TECH MAHINDRA LTD., MILIND KULKARNI VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE - I [2016 (9) TMI 191 - CESTAT MUMBAI] to drop the demand. It is not the contention of the department that the said decision does not cover this issue and all that has been contended is that it should not have been relied upon by the Commissioner since notice has been issued by the Supreme Court in the Civil Appeal filed by the department. This contention of the learned authorized representative of the department cannot be accepted. There is no merit in the appeal. It is, accordingly, dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether statutory/agency-collected NSDL and CDSL fees, collected by a Depository Participant and deposited with depositories, form part of the taxable value of 'depository services' and are liable to service tax for the period April 2006 to August 2007. 2. Whether reimbursements/remittances in foreign currency to representative liaison offices located outside India (covering salaries, rent, legal/professional charges and other expenses) attract service tax on a reverse charge basis as consideration for services rendered to the principal residing in India. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of NSDL/CDSL fees collected and remitted to depositories Legal framework: Service tax is leviable on taxable services as defined under the applicable service tax law; classification of depository services under 'Banking and other Financial Service' is governed by statutory definitions and clarificatory circulars (notably Circular dated 18.12.2002 and Circular dated 23.08.2007 which consolidated earlier circulars). Precedent Treatment (followed): The Tribunal decisions relied upon treated statutory charges collected by Depository Participants (NSDL/CDSL fees) and deposited with depositories as not leviable to service tax because such charges are statutory in nature, have a direct nexus with the depository function, and the participant does not derive benefit or retain the amounts. The Tribunal followed earlier decisions (cited in the judgment) that held similarly. Interpretation and reasoning: The Court examined paragraph references in the consolidating Circular 23.08.2007 and found that while the Circular classified depository activities under 'Banking and other Financial Service,' it did not expressly make NSDL/CDSL statutory fees taxable retrospectively. The Circular superseded prior circulars but, on its face and in the context of the relevant entries, did not convert separately collected statutory fees (which are merely collected as agent/collection mechanism and deposited with depositories) into assessable consideration retrospectively. The Tribunal applied the settled principle that oppressive administrative clarifications that curtail previously available benefits should be given prospective effect, and that retrospective operation should not be read into subordinate instruments unless expressly required by statute or necessary implication. Ratio vs. Obiter: Ratio - statutory/depository fees collected by a Depository Participant and remitted to the depositories are not includible in the taxable value of depository services for the relevant period absent an express statutory provision making them taxable; administrative circulars that are oppressive in effect ought not be given retrospective operation. Obiter - observations on the broader classification of depository activities under banking and financial services insofar as they reiterate Circular 50/11/2002 are explanatory. Conclusions: The demand for service tax on NSDL and CDSL fees for April 2006 to August 2007 was not sustainable and correctly dropped. The consolidating circular could not be applied retrospectively to impose liability where earlier clarifications excluded those statutory fees from taxable value. Issue 2 - Reverse charge liability on reimbursements to representative liaison offices outside India Legal framework: Reverse charge liability arises where consideration paid for taxable services falls on the recipient as per the statute and applicable notifications; the test involves whether the payment constitutes consideration for a taxable service supplied to the Indian entity by the foreign liaison office. Precedent Treatment (followed/distinguished): The Commissioner relied on Tribunal authority (Milind Kulkarni) to drop the demand; the Department pointed to the pendency of a Supreme Court appeal (notice issued) against that Tribunal decision. The Tribunal treated Milind Kulkarni and other authorities as precedent in favour of non-levy on reimbursements to foreign representative offices and noted that mere grant of leave/notice by a higher court does not nullify or set aside the Tribunal's decision. Interpretation and reasoning: The Tribunal analyzed the nature of payments to foreign representative offices and concluded that payments described as reimbursements for salaries, rent, professional/legal charges and miscellaneous expenses were not consideration for services rendered to the Indian entity but mere repayments of out-of-pocket expenses incurred in representing or facilitating investor relationships. The Tribunal applied the essential distinction between reimbursement of incurred expenditure (not consideration) and payment as consideration for a service; absent a relationship of service provider and service recipient, reverse charge cannot be invoked. The Tribunal further reasoned that issuance of notice in an appeal does not automatically negate the continuing precedential value of the Tribunal's earlier decision relied upon; therefore, reliance on Milind Kulkarni was permissible. Ratio vs. Obiter: Ratio - reimbursements to representative liaison offices abroad for expenses such as salaries, rent and professional fees, where they do not reflect consideration for services to the Indian principal, are not leviable to service tax on a reverse charge basis. Obiter - remarks regarding the procedural effect of a higher court issuing notice in an appeal against a Tribunal decision (i.e., that notice alone does not set aside the Tribunal's decision) are procedural and explanatory. Conclusions: The Commissioner properly dropped the demand for service tax on reimbursements to foreign representative liaison offices; such reimbursements are not taxable as consideration for services and therefore not subject to reverse charge. The Department's contention that pendency of a Supreme Court appeal requires maintenance of demand was rejected because pendency alone does not overturn the Tribunal's precedential effect. Cross-references and Concluding Observations 1. The two issues are linked by a common analytical thread: determination of taxable value hinges on whether amounts collected or paid constitute consideration for a taxable service or are merely statutory/expense items outside taxable value. 2. Administrative circulars and clarifications cannot be read to impose retrospective liabilities that impair existing rights absent express statutory mandate; where an administrative measure would be oppressive, prospective application is the appropriate remedial approach. 3. The Tribunal's reliance on its prior decisions holding statutory depository fees non-taxable and reimbursements to foreign representative offices non-consideration is affirmed; pending appellate notices do not automatically erode those precedents.