TaxTMI 
TaxTMI 
2015 (9) TMI 1036
X X X X Extracts X X X X
X X X X Extracts X X X X
....0,371/- for rendering of "banking and other financial services" valued at Rs. 15,83,07,200/- for the period 16 th July 2001 to 31 st March 2004 and interest thereon while refraining from imposition of the penal provisions of Finance Act, 1994. Revenue, too, is aggrieved by the impugned order to the extent that "cum-tax" value has been adopted for determining the value of the taxable service and has filed its appeal for resolution of this issue. Both the appeals are taken up for disposal in this order. 2. The circumstances leading to the impugned order relate to relief and savings bonds issued by the Reserve bank of India wherein M/s ICICI Bank acts as "agency bank" for sale of bonds to the public. In this role as "receiving office", subs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to service tax under section 65(105)(zzb) of Finance Act, 1994 as providers of "business auxiliary service" defined in section 65(19) of Finance Act, 1994 after its introduction on 1 st July 2003 and that as "receiving office" they do not render "banking and other financial service". 3. The original authority held that M/s ICICI Bank has sold bonds, which have been ascertained to be government securities, directly to subscribers and has earned brokerage thereon from the Reserve Bank of India which is liable to tax. It was also held that by issuing Certificate of Holding, by opening of new and maintenance of old Bond Ledger Accounts and by paying interest as well as redemption value, the "receiving office" has rendered custodial service....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an agency bank to that of custodial service provider because custodial service as defined in clause 2(e) of the SEBI (Custodian of Securities) Regulation, 1996 involves safe-keeping of securities on behalf of, and rendering services incidental thereto, a client; in the matter of relief bonds, there is no agreement for such service with the bond-purchaser who alone can be described as client. The "receiving office" has entered into an agreement only with Reserve Bank of India which is not the owner of the bond and is, therefore, not a client. That the rendering of service to customers, and consideration thereof, is essential for determination of taxability wherever the taxable service refers to customer is canvassed by reference to decision ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the impugned order is, therefore, not sustainable. Hence, the sole issue for determination is whether the gamut of activities performed by M/s ICICI Bank after sale of bonds is tantamount to custodial services and, therefore, renders them liable to tax of Rs. 44,62,861/- on the handling commission, turnover commission and service charge for rendering of "banking and financial services" from 16 th July 2001 to 31 st March 2004 of which there is no dispute on Rs. 25,50,678/- already paid by assessee as taxable under "business auxiliary service" for the period from 1 st July 2003 to 31 st March 2004. 8. Without doubt, M/s ICICI Bank is a banking institution; however, to determine that section 65(12) finds favour over section 65(19) for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces incidental thereto, and includes- (i) maintaining accounts of securities of a client; (ii) collecting the benefits or rights accruing to the client in respect of securities; (iii) keeping the client informed of the actions taken or to be taken by the issuer of securities, having a bearing on the benefits and rights accruing to the client, and (iv) maintaining and reconciling records of the services referred to in sub-clauses (i) to 9(iii); From the above, it is clear that custodial services in relation to securities is primarily the safekeeping of the securities of a client; the secondary function is that of providing services incidental thereto - a few of such services are included in the definiti....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... over custody of bonds to ICICI Bank; on the contrary, the subscriber details are entered in a register by the "receiving office" and interest is paid out at specified intervals to the bond-holder. A custodian, under a specific contract with security-owning clients, performs incidental services. In return for a fee, the custodian will receive the security, collect the interest or dividend on behalf of the investor from the borrower and obtain the redemption or sale value of the security on instruction from the investor. A perusal of the scheme of the Reserve Bank of India also eliminates such a scenario. The bond subscriber does not pay the ICICI Bank anything more than the bond price and it is from the Reserve Bank of India that assessee-a....