TaxTMI 
TaxTMI 
2026 (7) TMI 836
X X X X Extracts X X X X
X X X X Extracts X X X X
....tc. Being a member of the stock exchange, the appellant executes, trades on behalf of their clients and discharge the service tax liability on the brokerage under the taxable entry of "Stock Broker Services." These stock exchanges levy "Transaction Charges" for the services rendered by the exchanges in relation to assisting, regulating or controlling the business of buying, selling or dealing in commodities and including services provided in relation of trading, processing, clearing and settlement of transactions in commodities. The appellant paid the transaction charges to the stock exchanges and received the same as re-imbursement from their clients. During the disputed period from 01.04.2007 to 13.05.2008, the department had raised the objection that the appellant, as a commodity broker, is required to include the transaction charges collected from their clients in the gross value for the purpose of levy and service tax. The show cause notice dated 07.10.2011 issued in this regard, seeking confirmation of the service tax demand was culminated into the adjudication order dated 27.12.2012, wherein the original authority had confirmed the proposals made therein. On appeal against t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te service tax liability was discharged by them. However, with regard to the transaction charges collected from the customer and subsequently deposited with the stock exchanges were considered as element of gross value by the department for the purpose of payment of service tax thereon. With regard to the reimbursable expenses without any mark-up/profit, the Central Board of Excise and Customs (CBEC) in their instructions dated 17.09.2010, at paragraph 5, has clarified that in case of expense is the liability of the service provider, it has to be included in the taxable value; on the contrary, if it is the liability of the service receiver, which the service provider pays to the stock exchanges, acting as a pure agent, then such amount is not includible in the taxable value. We find that the department had confirmed the service tax demand in respect of the transaction charges under Rule 5 of the Rules of 2006. The said Rule has been struck down by the Hon'ble Delhi High Court, in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India - 2013 (29) S.T.R. 9 (Del.). The said judgement of the Hon'ble Delhi High Court was also upheld by the Hon'ble Supreme Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thin its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act. 22. Section 66 of the Act is the charging Section which reads as under: "there shall be levy of tax (hereinafter referred to as the service tax) @12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed." 23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various subclauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services'. Thus, service tax is reference to the val....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has precedence and must be complied with." 27. The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act. 28. It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel : "the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect." 29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L 'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments c....