AI Drafter 
TaxTMI 
TaxTMI 
2020 (6) TMI 257
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....0/- (Rupees Fifty Two Crores Thirty Six Lakhs Twenty Thousand Nine Hundred and Fifty only) for the period 01.04.2004 to 31.03.2009 in terms of Section 73(2) of the Finance Act, 1994, read with Section 66 and Section 68 ibid and Rule 6 of Service Tax Rules, 1994; 5.03 I order for recovery of interest under Section 75 of the Act , at the appropriate rates on the amount of confirmed demand ordered for recovery at Para 5.02 above; 5.04 I impose a penalty of Rs. 500/- (Rupees Five Hundred only) under Section 75A of the Finance Act, 1994. 5.05 I impose a penalty of Rs. 52,36,20,950/- (Rupees Fifty Two Crores Thirty Six Lakhs Twenty Thousand Nine Hundred and Fifty only) under Section 78 of the Act. If the Noticee pays the Service tax confirmed, as mentioned in para 5.02 above, along with the interest on delayed payment within 30 (thirty) days from the date of communication of this Order, the amount of penalty liable to be paid by the Noticee under Section 78 of the Act shall be twenty five percent of the service tax payable/ confirmed in para 5.02 above. However, the benefit of reduced penalty under Section 78 of the Act, shall be available only i the said Servi....
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....ors through their agents called as Depository Participants; • As per Balance Sheet, Appellants Depository Segment includes providing various services to the investors like dematerialization, re-materialization, transfer and pledge of securities in electronic form through closed user group network of business partners viz issuers/ Registrar & Transfer Agents and Depository Participants (DP); • There electronic platform is designed to provide information in relation to securities and enables the DP or their investors to have access to their securities holding at any time; • Processes of de-materialization/ re-materialization. Pledge, transfer of securities indicate that there is provision of information, transfer of information and data processing through electronic media; • Appellants are providing "provision and transfer of information and data processing" taxable under the category of "Banking and Financial Services" as defined by Section 65 (12)(a) of the Finance Act, 1994; • The amounts charged and recovered by the appellants from the DP's by the Appellant for the provision of these services would be the taxable va....
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....ocate for the Appellant and Shri Suresh Merugu, Joint Commissioner, Authorized Representative for the revenue. 3.2 Arguing for the appellant learned counsel submitted that:- • They have entered into agreement with the Income Tax department for provision of services (non depository segment) and to operate TIN Facilitation centres. For providing these services TIN facilitation Centres have obtained registration with Service Tax department and have paid the service tax due, under the category of Business Auxiliary Services. • These services and certain other services in respect of which service tax has been paid have been included in the demand resulting in duplication of demands to tune of Rs. 19,81,59,112/-. The submissions made by them on this account have been rejected by the adjudicating authority for the reason that Shri T K Desai, SR V P has described various heads under which the service tax has been paid and did not include the service tax paid under this head. • They had also produced a Chartered Accountant Certificate dated 25.04.2013 in respect of error in computation of demand in SCN, which has been brushed aside contrary to the d....
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.... • Depository Participants are merely an agent Depositories. There is no service in the nature of Depository Service provided by the Appellant to the DP's. This is because in terms of the charging entry under the FA 1994 namely Section 65(105)(zm) the service is to be rendered to a customer. DP's provide the service to the customer/ client. There is no service in nature of Depository provided to the DP's as they are not customers in terms of the explanation provided under Board Circular F No B-II/2000-TRU dated 9.07.2001. • "The word "customer" was substituted by the word "any person" from 16.05.2008. In case of Standard Chartered Bank 2015-TIOL-1713-CESTAT it has been held that the understanding in terms of above Board Circular with regard to the meaning of the word "customer" should prevail. • They provide infrastructure to DP's and no depository service is provided to them. Board has vide Circular No 50/11/2002-ST dated 18.12.2002 clarifying that the services of "EASI" provided by CDSL is part and parcel of the depository service and covered under Banking and Other Financial Services. • Their Business model requires them to recover f....
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....tra Tech Cement [2019-TIOL-1420-CESTAT-Ahm] • Since the depository participants act as agents for the purpose of depository services and have discharged Service Tax on entire consideration including fees. Tribunal in case of Canara Bank [2012 (6) TMI 274 CESTAT] held that there cannot be any tax liability on these activities. Hon'ble Supreme Court has in the case of The Cement Allocation and Coordination Organization [1971 (9) TMI 161 Supreme Court] held that exemption available to principal will be available to agents also. • If it is presumed that they are providing the services to Depository Participants then also the same could be only "infrastructure support service" which is in the nature of Business Support Service and not the Banking and Other financial Service. • Commissioner has erroneously confirmed the demand on the basis of two circular namely Circular No 50/11/2002 dated 18.12.2002 and Circular No 96/7/2007 dated 23.08.2007. The second circular contradicts the earlier circular with regards to the category of service. • A vague show cause notice which is not specific and demand confirmed on the basis of such vague sho....
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.... in appeal and during the course of argument of appeal and in written submission filed. 4.2 The issue for consideration in the present appeal before us is, "whether the services provided by the appellant to their Depository participants are in nature of "provision and transfer of information and data processing" services taxable under the category of Banking and Other Financial Services as defined by Section 65(12) of the Finance Act 1994. 4.3 Period of demand in the present case is for the period 01.04.2004 to 31.03.2009. Section 65 (12) of the Finance Act, 1994 reads as follows: Section 65(12). - "Banking and Other Financial Services" means (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or any other person namely :- (i) financial leasing services including equipment leasing and hire-purchase; (ii) credit card services; (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking; (v) asset management including portfolio management, all forms of fund management, pension fund....
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....iding these facilities appellants are electronically linked via satellite to various functionaries such as Depository Participants (DPs), issuing companies and their registrars and transfer agents, clearing corporations/ clearing houses of stock exchanges etc. Appellants in para 3.2.4 of their appeal memo provided the following schematic diagram in respect of the interconnections between them and various functionaries electronically: 4.7 From the schematic diagram submitted by the appellant, it is quite evident that Appellant's are in fact having an electronic system providing for transmission of data to various participants/ partners in their business. In fact they provide the platform to their Depository Participants (DP's) through which they interact with Investor, Issuer, Registrar and Transfer Agents & Clearing House. For providing these services they charge certain fees from their Depository participants. 4.8 Section 4, 5, 9 & 10 of Depositories Act,1 996 read as follows: "4. Agreement between depository and participant. (1) A depository shall enter into an agreement with one or more participants as its agent. (2) .............. ....
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....d SPEED-e. The facility can be used by all registered users. Your DP will help you in registering for the facility. How does SPEED-e work You can submit delivery instructions electronically, on the SPEED-e website https://www.speed-e.nsdl.com, after your DP has authorised you to operate your account through the SPEEDe facility. You can monitor the status of such delivery instructions to ensure that the instructions have been executed. How can I as de-mat account holder/ clearing member benefit from Speed-e? The benefit offered by SPEED-e to a demat account holder / Clearing Member is the convenience of conducting demat account transactions using an Internet connection from anywhere at anytime eliminating paperwork. Time and efforts for obtaining delivery instruction forms from your DP and submitting them to the DP everytime you sell securities is saved. How can I register myself for SPEED-e? For using the SPEED-e facility it is essential that your DP must be registered with NSDL for this facility. There are two types of users for this facility , one is password based user who logs in with his password and can transfer securities....
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....ity Deposit, Annual Maintenance Fee for Corporate Accounts & Minimum Fee. The business rules make it clear that all such fees will be charged from and paid by the depository participant. Similar fees are charged from issuers. These rules further define the following terms as follows: "3.1.5 Depository Module (DM) means the software installed at the depository; 3.1.6 Depository Participant Module (DPM) means the software(s) provided by the depository relating to the depository operations deployed and/ or assessed using the User Hardware system. This shall be either the DPM (DP), DPM (CC) or the DPM (SHR). The DPM (DP) shall include the e(DPM) and the Local DPM. 3.1.7 Depository Participant Module (Depository Participant) - [DPM (DP)] means the software relating to the Depository operations relating to the Depository operations installed on the hardware system of the Participant and Depository Participant Module (Clearing Corporation) - [DPM (CC)] means the software relating to the Depository operations relating to the Depository operations installed on the hardware system of the Participant which is a Clearing Corporation. 3.1.8 Depository Partici....
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....a User of the Depository, except with the explicit approval of the Depository. 5.3 Fess and Charges The Participant shall have the discretion to charge any fees to its Clients. Further, the Participant may charge different type of fees to its various Clients. In the event of the Client committing a default in the payment of any of the charges within a period of thirty days from the date of demand, without prejudice to the right of the Participant to close the account of the Client, the Participant may charge interest @ not more than 24% p.a. or such other rate as may be specified by the Executive Committee from time to time for the period of such default. Provided further that the Participant shall file the charge structure every year, latest by 30th April, with the Depository and also inform the depository the changes in their charge structure as and when they are effected. 11.3.6 The Participant shall execute the instructions for Repurchase or Redemption of securities in the DPM (DP). 11.3.7 The Issuer or its Registrar and Transfer Agent shall verify the request in the DPM (SHR), and if in order, confirm the request for Redemption or R....
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....the "Banking and Other Financial Services" as defined by 65(12)(a)(vii) to the Depository Participants. Depository Participants have in turn utilized these as input services to provide Depository Related services to their users/ clients. Commissioner has in para 1.33 to 1.37 observed as follows: 4.13 On the same issue this tribunal has in case of Bank of Baroda [2016 (43) STR 141 (T-Mum)] held as follows: "7. We find from the impugned order that the appellant is receiving the services from SWIFT, the service involved is transfer of information and also includes data processing. As far as transfer of information, there is no dispute even by the appellant. As regard the provision of data processing the messages sent through SWIFT are encrypted and decrypted in SWIFT's central system and thereafter it is re-encrypted before the transaction to the beneficiary SWIFT customer. Thus the message data is processed at both locations to prevent data loss. This clearly shows that the data is processed in the entire process of transferring of messages through SWIFT operating centre. 7.1 On further perusal of record, we observe that the SCN contended that services provided b....
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....y, the term data processing can apply to any process that converts data from one format to another. From this perspective, data processing becomes the process of converting information into data and also the converting of data back into information. The terms 'information' and 'data' are not synonyms. Data is defined as raw facts while information is processed data. Information is the thing that one knows and data is the representation of the information. Information has meaning while data does not. Computers work with data and not information. Information is a subject of data. Data is unstructured, lacks context and may not be relevant to the recipient. When data is correctly organized, filtered and presented with context, it can become information because it then has "value" to the recipient. Data which is not information is often called raw data. The terms "data", "computer network", "information" are defined under various provisions of the ACT read with the relevant definitions provided under the Information Technology Act, 2000. From the discussions above, it appeared that to facilitate transmission of financial messages, computer network systems known as SWIFT network are ins....
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....d in "Banking and Other Financial Services". The service shall remain taxable as the service is clearly covered under the definition of "Banking and Other Financial Services" in clause (vii) of Section 65(12). Moreover the appellant being liable to pay the service tax is 'deemed service provider'. Therefore, the status of the appellant is required to be considered and not the status of service provider who is located outside India. For this reason the appellant is undisputedly the deemed 'banking and other financial institution'. Hence, the submission of ld. counsel does not hold water and it is rejected." 4.14 Thus we find that throughout Appellants were providing for "provision and transfer of information and data processing" and these are provided in relation to their depository operations. Thus the services provided by them to Depository Participants are covered by the definition of Banking and Financial services and are liable to service tax under that category. Appellants have taken the stand that extended period of limitation cannot be invoked as the relevant facts were in knowledge of the revenue and hence they had not suppressed anything from the revenue authorities wit....
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.... acceptable since Service Tax is leviable on the gross amount charged by the service provider in terms of Section 67 of Chapter V of the Finance Act, 1994 and penalties collected by noticee form a part of the gross receipts. The noticee has further claimed that Service tax is already paid on 'Fees for ETDS (AIR) Upload', 'Fees for E-TDS Upload 04-05', 'Fees for ETDS Upload 05-06', 'Fees for Tin (Pan 45)" 'Fees for Digitisation charge' and 'Fees for Tin (Tan 35)'. In this regard, I have gone through the statement dt. 15.10.2009 of Shri TK Desai, Senior Vice-president of noticee, wherein he has described all the different heads on which Service Tax has. been paid by the noticee. I do not find mention of the heads on which service tax is alleged to have been paid by the noticee in the statement. Therefore, I am not inclined to accept their contention. As regards the noticees contention that Service Tax is calculated twice on same item 'Recovery on A/c of ISDN', I find from the data provided by noticee that there are two distinct items 'Recovery on A/c of ISDN (Tin)' and 'Recovery on A/c of ISDN'. Therefore the Service tax calculation is done correctly. The noticee has also contended t....
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.... goods in wholesale trade. Wholesale price will include the element of duty payable on any goods because such duty forms part of the consideration for sale of the goods according to terms of sale of the goods. If any further demand of duty is created against an assessee and such further demand of duty cannot be passed on to a customer in view of the terms of sale of any goods between the assessee and a customer, the original consideration (including duty, if any) received by an assessee for sale of the goods in wholesale trade, has to be taken as cumduty price for the purpose of demand of higher duty subsequently. Any hypothetical consideration that the sale price would have gone up had correct duty been paid in the first instance cannot, in our opinion, be made the basis for nonabatement of differential duty from the realised sale price. We have to take into account the facts as they are, not what they might have been. Total duty proposed to be demanded shall have to be abated from the cum-duty price actually received and liable to be received as a consideration for sale of goods. This is the mandate of Sub-section 4(d)(ii). Contention of assessees, as given in examples in para 6.....
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....n in the present proceedings. Hence the matter for quantification of demands on the above lines need to be remanded back to the original adjudicating authority for denovo consideration. 4.19 Since we uphold the demand of tax made, we uphold the demand of interest made under Section 75 of the Finance Act 1994. For doing so we rely upon the decisions as follows: ➢ P V Vikhe Patil SSK [2007 (215) ELT 23 (Bom)] affirmed by the Hon'ble Supreme Court [2016 (335) ELT 196 (SC)]; ➢ Kanhai Ram Thakedar [2005 (185) ELT 3 (SC)] ➢ TCP Limited [2006 (1) STR 134 (T-Ahd)] ➢ Pepsi Cola Marketing Co [2007 (8) STR 246 (T-Ahd)] ➢ Ballarpur Industries Limited [2007 (5) STR 197 (T-Mum)]. 4.20 Penalty has been imposed by the Commissioner under Section 75A & 77 for various infractions noticed in complying with provision of law. For imposing penalty under these Sections Commissioner has recorded as follows: "4.22 As regards imposition of penalty under Section 75A of the Act, I find that they failed to apply for registration as required under Section 69 of the Act read with Rule 4 of Service Tax Rules, 1994 and therefore p....
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....ned order, penalties as imposed under Section 77(2) are justified. 4.21 While imposing penalty under Section 78 of Finance Act, 1994, Commissioner has observed as follows: "4.23 As regards proposed penalty under Section 78 of the Act, it is seen from the case records that the noticee had provided the services for a commercial consideration and have deliberately failed to assess and pay Service Tax due on the value received by them on account of these taxable services provided. They also did not file periodical ST-3 returns for these taxable services provided which clearly proves that they had avoided payment of Service Tax within the due dates stipulated under STR, which but for the said investigation initiated by DGCEI would not have come to light, thereby making them liable to penalty under Section 78 of the Act. Moreover extended period under proviso to Section 73(1) has been correctly invoked in the subject case. Noticee's reliance, in this regard, on various case laws like: (i) Nizam Sugar Factory vs CCE AP [2006 (197) ELT 465 (SC)] (ii) Dolphin Detective Agency vs CCE Belgaum [2006 (4) STR (25)] (iii) Ugamchand Bhandari vs CCE Madras [20....
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....he demand after allowing the benefit cum tax value as per section 67(2) of Finance Act, 1994 and amount of tax paid by the appellants as per the ST-3 returns for relevant period filed by the appellant. Thus the appeal is allowed to this extent and matter remanded to adjudicating authority for re-quantification of demand and determination of penalties under Section 75A, 77 and 78. (Order pronounced in the open court on 08.06.2020) ============= Document 1 Issuer Registrar & Transfer Agents VSAT Link NSDL (Appellant) DP Investor VSAT Link Clearing House VSAT Link Clearing Member DP Investor Document 2 5.1. On being asked, Shri Tejas Kulin Desai stated that NSDL is having its Regd Office at 4th floor, A-Wing, Trade World, Kamal Mill Compound, Senapati Bapat Marg, Lower Parel, Mumbai-4000013 and branch offices at New Delhi, Pune, Calcutta and Chennai; that NSDL is formed under the Depositories Act, 1996 and the regulatory framework has been notified by SEBI under SEBI (Depositories & Participants) Regulations, 1996; that the Bye-laws and the Business Rules of NSDL govern the functioning and operational procedures of NSDL; ....
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....egy vis-Ã -vis their customers and therefore the service charge may differ from one DP to another. 5.3. On being asked about the different charges collected by NSDL from the DPS/Issuers/others, he stated that NSDL is collecting following charges under invoices from DPS /Issuers/others :-(A) Different types of fees charged namely (i) fees for steady; (ii) fees for speed facility; (iii) IDEAS fees; (iv) Speed-e fees; (v) Corporate Action Fees; (vi) Fees for change of share registrar (vii) Custody fees; (B) Fees from TIN Projects: (a) e- Return Intermediary Registration; (b) Fees for accepting physical returns; (c) Fees for e-TDS/TCS/AIR upload; (d) Fees for PAN applications; (e) Fees for TIN (processing fees); (1) Fees for e-TDS/TCS/AIR processing charges; (g) Fees for TAN applications; (h) PAN Registration; (i) Fees for processing charges (CBEC); (C) Fees on MAPIN (D) Misc. Income: a) Dividend Distribution; b) Exchange Traded Scheme. On being asked Shri Tejas Desai stated that the Operational income shown consists of: (a) Annual fees; (b)Settlement fees i.e. (i) Transaction fees; (ii) Pledge Fees; (iii) Lending fees; (iv) Penalty ....
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....ository participants; that these D.Ps. are Bank, Custodian, Public Financial Institution, Stock Brokers, NBFCs; that there are about 280 DPs all over India. NSDL maintains securities, consisting of shares, debentures, bonds, commercial papers etc. of the securities holders, in 'dematerialized form; 6.2. On being asked what is meant by Depository Participant Module and its use? Shri Mehta stated that DPM means a software relating to the Depository operations installed on the User hardware system; that Depository System means the hardware, software and telecommunication network established by the Depository to facilitate the operations of the Depository; that Depository Module means the software installed at the Depository. 6.3. On being asked about Speed-e and IDEAS facilities, Shri Mehta stated that these are the internet based facilities to enable the investors to submit instructions to DPS/NSDL and view statement of transactions respectively; that Speed-e facility is optional. 6.4. On being asked whether DPs can access securities information (Centralized system) maintained by NSDL electronically, Shri Desai stated tha....
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....tion on the DPM, which must be completed before the EOD process initiated at NSDL. In case the EOD has been initiated, any release of transactions shall be recorded for the next working day. 6.11. On being asked what does NSDL do with the information received from DPs, Shri Mehta stated that NSDL maintains all records in electronic form and ensures the integrity of DM to ensure that the data is not lost, destroyed or tampered with and in the event of loss or destruction, ensures that sufficient back up of records is available at all time at a different place. 6.12 On being asked as to whether NSDL transfers the information received from DPs to the Issuer, Registrar & Transfer Agent and the reasons for doing so and as to what is meant by Depository Participant Module Issuers/Registrars? Shri Mehta stated that the information pertaining to demat requests of the clients captured by DPs to Issuers/R & T Agents. NSDL also provides reports updating beneficial owners on a weekly basis to the Issuers, Registrars & Transfer Agents as per the agreement executed between NSDL, Issuers and/or the R & T Agents;. that DPM (Issuer/Registrars....
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....t Securities, units etc.) of investors in electronic form. Besides holding securities, NSDL also provides services related to transactions in securities. NSDL interfaces with the investors through its agents called Depository Participants (DPS). As per the Balance Sheet of NSDL, Depository Segment includes providing various services to the investors like dematerialization, rematerialisation, transfer and pledge of securities in electronic form through closed user group network of business partners viz., Issuers/Registrar & Transfer Agents and Depository Participants. It appears that the NSDL system is designed to provide information relating to securities in electronic form. It further appeared that the platform provided by NSDL is to enable the DPs or their investors to have access to their securities holding at any given point of time electronically. The processes involved in dematerialization, rematerialisation, pledge, transfer of securities appear to indicate that there is provision of information, transfer of information and data processing through electronic means. The nature of services provided by NSDL, as explained in detail in....
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....s taken necessary steps to protect the transmission and storage of data. 1.35 This issue has been dealt with in detail in Circular No. 96/7/2007-S.T., dated 23-8-2007. In response to a query as to "Whether depository services and Electronic Access to Securities Information (EASI) services provided by Central Depository Services (India) Ltd., (CDSL) are liable to service tax under Banking and other Financial Services [section 65(105) (zm)}", it has been clarified that "Services provided by CDSL fall within the scope of "provision and transfer of information and data processing". These services are not in the nature of "on-line information and data base access or retrieval services". Therefore, the depository services provided by CDSL including Electronic Access to Securities Information (EAS!) for a fee are liable to service tax under Banking and other Financial Services [section 65(105)(zm)]." Further, earlier also, doubts were raised with the Board as to whether Service Tax is payable on the services rendered by Central Depository Services (India) Limited (CDSL). CDSL was providing depository services in respect of DEMAT stocks to its c....