M/s. Religare Securities Ltd vs C.S.T., Delhi

Both the appeals, one filed by the assessee and the other filed by the Revenue are being disposed of by a common order as they arise out of the

same impugned order of the Commissioner, vide which he has confirmed the service tax demand of Rs26,91,58,904/- (Rupees twenty six crore ninety

one lakhs fifty eight thousand nine hundred and four only) against the asseessee along with the confirmation of interest and has imposed penalties of

Rs.10,000/- under Section 77 and Rs.28 lakhs under Section 78 of the Finance Act, 1994 upon the assessee. Revenue's appeal is against that part of

the impugned order of the Commissioner, vide which he has dropped the demand of Rs.70,34,801/- (Rupees seventy lakh thirty four thousand eight

hundred one only) in respect of the services provided by the appellants' sub- brokers located in Jammu & Kashmir to their clients of Jammu &

Kashmir.

We have heard Shri B.L. Narasimhan, Ld. Advocate for the assessee and Mr. Godvind Dixit, Ld. Departmental Representative appearing for the

Revenue.

The appellants are a registered member of National Stock Exchange, Bombay Stock Exchange, Depository Participant with National Security

Depository ltd. and Central Depository Service (I) Ltd. They are providing, inter alia, services of stock broking and are registered with Service Tax

Department.

The appellants are providing on-screen trading experience to its customers by offering on-line trading platform where the customers can trade

across the world by logging in to their self-trading terminal using a secured gateway user ID and password and secondly, off-line trading for clients,

who may trade in securities directly from the branches or through phones or tele-calling. The appointed dealers carried out the trading activities on

behalf of their clients. For the said purposes, they are issuing Contract Notes to their clients, which are being despatched to the customers either in

physical (hard copy) form or in digital mode (soft copy) mode in respective e-mail id. The appellants are maintaining client-wise ledger/books of

accounts and duly debited brokerage and applicable statutory charges like stamp duty, service tax, exchange turnover charges, STI to the customers

on the settlement date as posting date in the ledger. The clients desirous of trading are required to pay initially a margin money either in cash or in the

form of collateral security such as shares to assessee. Such securities are kept in its depository account. On the basis of available margin, the

customers are allowed to purchase/sell the securities. The clients are required to pay off their obligations by settlement date either through cheque or

demand draft.

The appellants are making payments towards stock exchanges, made on behalf of their clients in advance, irrespective of the receipt of transacted

amount. In cases, their clients made any delay in making payments to the appellants, they charged Delayed Payment Charges (hereinafter referred to

as DPC, for the sake of brevity) from their clients, which is being done by making debit entries in the ledger maintained by the appellants.

It is, these DPCs, which is the subject matter of the appeal filed by the assessee. As per Revenue, such DPCs, recovered by the appellants from their

clients, in respect of the payments which the appellants have already made on behalf of their clients, but have not recovered the same from the clients,

is a part and parcel of the services and hence liable to service tax. On the other hand, it is the contention of the appellants that such DPC is not in lieu

of stock broking service but is a penal recovery for late payment of the dues by the clients.

The issue involved in the Revenue's appeal is as to whether the services of stock broking rendered by the appellants' sub-brokers located in Jammu

& Kashmir to the clients of Jammu & Kashmir would attract service tax or not.

In the above back-drop, proceedings were initiated against the appellants by way of issuance of two Show Cause Notices. The Show Cause Notice

dated 20.10.2009 for the period 2004-05 to 2008-09 and another Show Cause Notice dated 30.09.2009 for the period 2009-10 were issued to the

appellants. The said Show Cause Notices proposed to recover service tax in respect of DPCs charged by the appellants from their clients as also the

service tax in respect of services rendered by the appellants, through their sub-brokers in Jammu & Kashmir, to their clients located in Jammu &

Kashmir. As already noted, the Commissioner has confirmed the demand along with interest and penalties in respect of DPCs recovered from the

clients and has dropped the demands in respect of the services rendered to the clients located in Jammu & Kashmir. Hence, the present appeals by

both the sides.

As regards the first issue, the facts are not in dispute. As per the appellants, the DPCs were in the nature of penal interest on outstanding debit

balance unpaid by their clients upto a certain period and was used as a tool to recover a minimum settlement money from the clients. The said DPCs

were recovered by the appellants by debiting the running ledger accounts of the clients on monthly basis and the customers were being informed

through debit notes by mentioning the charges so debited to their running ledger. According to the appellants, such debit notes do not constitute the

invoice/bill/challan or a contract note raised against their clients for rendering any service, but is a simplicitor, an information to their client about the

penal interest having been debited to their running account. It is the contention of the appellant that they have made payments to the Exchange on

behalf of their clients, who delayed the payments against their transactions of their securities. As such, they have contended that by no stretch of

imagination, such DPCs can be held to be associated with the services of stock broking so as to treat the same as commission/brokerage and to levy

service tax in respect of the same.

In support of his submissions, Ld. Advocate draws our attention to the various circulars issued by CBEC as also precedence decisions of the Tribunal.

On the other hand, it is the contention of the Revenue that the amount collected by the appellants as DPCs is nothing but a consideration in

connection with securities purchased and sold by broker on behalf of their clients. Any income generated upto the settlement of the contract note, shall

form taxable value in terms of Section 67 of the Finance Act, 1994. The service of a stock-broker gets completed only when the terms and conditions

of the contract note entered with the client for sale/purchase of securities are completely accomplished. The payment of outstanding amount to the

Stock Exchange on behalf of the clients is part of the service relating to broking and is completed only when the transactions for the same are finally

settled. As such, the income generated upto the stage of completion of contract shall form part of the taxable value in terms of Section 67 of the Act.

The Commissioner has further held that the assessees' job is to provide multifaceted value added services, for which they are charging brokerage or

commission and other related charges. The DPC is indirectly related with service of sale and purchase of securities and the charge of delayed

payment is connected with one of the series of entire bunch of services being provided by the assessee before final receipt of the consideration. In as

much as the DPC has become a source of income for the assessee, the same essentially would be a part of the service. The said DPC is being

reflected by the assessee as income in their books of accounts under the income head and hence has to be considered as value of the services which

are completed only when the entire transaction is finally settled and contract notes are issued.

After appreciating the submissions made by both the sides, we find that the dispute to be decided in the appeal is as to whether the DPC collected

by the appellants from their clients in those cases where the appellants have already made payments to the Exchange but has not recovered the same

from their clients, are required to be considered as a part of the value of the services, so as to levy the service tax in respect of the same. We find that

there is not much dispute on the facts. The DPCs are being collected by the appellants only from those clients, who have not paid them well within the

time limit period and the appellants being under a legal contract with the Exchange, had to deposit the value of the securities, sold or/and purchased by

their clients. As such, the nature of the said DPCs being a penal charge, is established. Where there is no delay in making payments by the clients, no

DPC is being charged from them. As such, one thing becomes clear that such DPC is not on account of any stock-broking services being provided by

the appellants.

In terms of clause 45 of the agreement entered by the appellants with investors, - ""any amount overdue towards trading or any other reason will

be charged with delayed payment charges"". Perusal of the said clause reveals that the DPCs are collected only in case of overdue payments. The

reasoning of the Commissioner that the origin of the DPC has taken place on account of business or service of sale/purchase of securities by a stock-

broker and the same has to be considered as a part of the service does not appeal to us, for the simple reason that such DPC collection has got

nothing to do with the sale/purchase of the securities, a service which the appellants is rendering as a stock-broker but admittedly is a charge

recovered from only those customers, who delayed the payments of the securities value and is in fact is a penal interest, for compensating the

assessee for the payments already made by them, to the Exchange, on behalf of their clients.

In the case of LSE Securities Ltd. Vs. CCE, Ludhiana [2012- T!OL-593-CESTAT-DELt]h,e Tribunal deliberated on more or less an identical issue

of inclusion of Demat turnover charges, BSE charges and SEBI fee recovered by them from their clients and deposited with the Stock Exchanges.

Though we note that the issue in the said decision was in respect of recovery of the statutory charges from the customers, which were being

deposited by the stock-broker with the Exchange but certain observations and findings made in that said decision, can be adopted for the purpose of

resolving the dispute in the present case also. It is seen that clause (a), Section 67 of the Act which relates to taxable services provided by a stock-

broker, is to the effect that the value of services has to be aggregated of commission or brokerage charged by a broker on the sale/purchase of

securities including the commission or brokerage paid by the stock-broking to any sub-broker, which shall be liable to service tax. While considering

the said clause, the Tribunal observed as under:-

12.4 The scheme of valuation of aforesaid service which was in force till 15.7.2001 underwent amendment by Finance Act, 2001. The

amending Act replaced section 67 by Finance Act, 2001. Prescribing levy of tax on the gross amount charged by service provider (stock

broker) for the taxable service provided by him. Such aggregate charge was gross value. An explanation appeared in the amended section

declaring that value of taxable service as the case may be shall include certain receipts prescribed by different clauses appearing under

section 67. Clause (a) is the relevant clause insofar as that relates to taxable service provided by stock broker and that is under

consideration in these appeals. That clause states that securities including the commission or brokerage paid by the stock broker to any

sub-broker shall be liable to service tax. Thus, there is no extended meaning of measure of levy even by amended definition of valuation of

taxable service.

12.5 Provision of section 67 provides the basis of determine the value of taxable service. No ambiguity persists in section 67 of the Act. No

receipt other than commission or brokerage made by a stock broker is intended to be brought to the ambit of assessable value of service

provided by stock broker. Charging section in a taxing statute is to be construed strictly As is often said, there is no equity about tax. If the

words used in a taxing statute are clear, one cannot try to find out the intention and the object of the statute [Ref: Govt. of Andhra Pradesh

vs. P Laxmi Devi- 2008) 4 SCC 720: AIR 2008 SC 1640],

Learned Counsels arguing the matter are correct to say that budget speech of the Hon'ble Finance Minister made clear what was

intended to be taxed in respect of service provided by stock broker. It was submission of the learned Counsel Shri Mittal that in so far as

stock brokers are concerned, brokerage or commission charged by them only form value of taxable service and that was intended to be

taxed by the budget of 1994-95. This was the proposal in Part 'B' of the Budget presented to the Parliament on 28h February, 1994.

Reading of the legislative intent from the budget speech and the express legislation in section 67 of the Act does not leave any room for

implication of ambiguity Therefore, express grant of the statute no way leaves scope for implication to make the statutory grant ineffective.

Law being well settled that there is no intendment in taxation and the State has to discharge its burden of proof to bring the subject into tax,

there is no scope to bring any other element of receipt other than brokerage or commission to the scope of assessable value in respect of

service provided by stock brokers.

Normally value is derived from the price and value is the function of the price. This is conceptual meaning of value. Section 67 is the

sole repository of law governing value of taxable service provided by the stock broker. Any charge on the non-includible elements other

than brokerage or commission will result in arbitrary taxation. Similarly receipts not in the nature of commission or brokerage should not

be taxed in disguise. The brokerage or commission service provided by stock broker shall be liable to service tax. That being consideration

for taxable service provided, become assessable value of such service. Because tax is compulsory exaction, no subject shall be made liable

without authority of law. To the extent authority is vested, only to that extent tax can be imposed. Commission or brokerage charged by

stock broker are only liable to tax by express provision of law. Any other exercise of authority beyond that shall make that fatal.

The correct assessable value of taxable service usually is the intrinsic value of the service provided since service commands that value

only and that should only be taxed without any hypothetical rule of computation of value of taxable service under section 67 of the Act. The

other receipts a stock broker makes are irrelevant for determination of the assessable value of taxable service provided by him. Thus the test

is whether a receipt of stock broker is in the nature of commission or brokerage to levy service tax.

As is seen from the above, the mandate of Section 67A of the Act is that it is only the commission/brokerage, which is liable to service tax and no

other recovery made by the stock-broker can be held to be a part of the value of the service. The Tribunal very clearly observed that the receipts not

in the nature of commission/brokerage should not be taxed in disguise. In as much as, we have already held that DPC is not a commission or a

brokerage for sale/purchase of securities, as the same is not being collected from each and every customers but is relatable to only delayed payments

by some of the customers, there is no justification for inclusion of the same in the value of the services.

Apart from the above, we note that the issue stands clarified by the CBEC vide their letter dated 03 08.2011, relating to the DPCs recovered by

the stock-broking service, the Board observed as under:-

Sub: Section 67 - Clarification regarding service tax on delayed payment charges collected by the service provider in respect of Stock

Broker's services - reg.

Representations have been received seeking clarification regarding leviability of service tax on the additional amount that is collected

towards the delay in making payment to the stock brokers by their customers (delayed payment charges) in respect of Stock Broker's

services.

The matter has been examined. Clarifications issued by the Board in the past on similar issues are summed up below:-

(i) Circular No. 96/7/2007 at para 002.01 clarifies that an amount collected for delayed payment of a telephone bill is not to be treated as

consideration charged for provision of telecom service and therefore, does not form a part of the value of taxable service.

(ii) Circular No. 121/0212010-ST dated 26.4.2010 clarifies that detention charges in respect of detained containers are not in respect of

service provided on behalf of client (under BAS) nor it it on account of infrastructure support services (under BSS). Such charges can at

best be called as 'penal rent' for retaining the containers beyond the predetermined period. Therefore, the amount collected as 'detention

charges' is not chargeable to service tax.

2.1 In a similar manner, delayed payment charges received by the stock brokers are not includible in taxable value as the same are not the

charges for providing taxable services. Such charges are on account of delay in making payments by the service recipient to the service

provider and are in the nature of a penal charge for not making the payment within stipulated time. Such amounts are not includible in the

taxable value for charging service tax. This principle will also apply to other service providers.

However, Section 67 of the Finance Act, 1994 provides that service tax is chargeable on taxable value which shall be the 'gross amount

charged' by the service provider. Therefore, if in the account statement/invoice/bill, etc. issued by the service provider, only the gross

amount is shown without indicating the delayed payment charges separately, the service tax would be payable on the entire amount.

Delayed payment charges would not be includible in the 'gross value charged' only if these charges are shown separately in the account

statement/invoice/bill etc.

As is seen from the above, the DPCs recovered separately and shown separately in the invoices/bills cannot be held liable to payment of service tax.

Admittedly, in the present case, such DPCs were being recovered by the appellants by issuing separate debit notes to their customers and by debiting

the amounts in their running ledgers. As such, the clarification issued by the Board is fully applicable to the facts of the present case.

Though we have held in favour of the appellants on merits, we also note that major part of the demand is barred by limitation. Admittedly, the

appellants were maintaining all the records showing recover of said DPCs and were reflecting the same in their books of accounts as also in their

balance-sheet. The Commissioner has invoked longer period only on the short ground that they have never disclosed the same to the Revenue and said

non-payment of service tax is indicative of the assesses intention and motive to evade tax. However. we fail to understand that if the fact of non-

payment of tax. by itself. can be made a ground by attributing ma/a fide to an assessee, the limitation period would never be applicable in any case of

non-payment and the resultant confirmation of demand. In any case, Commissioner has also observed that it is possible to invoke extended period of

limitation in the case of service tax even in a situation where there is nothing to evade payment of duty, in as much there is no requirement that

suppression should with intention to evade. He has observed that a mere suppression is adequate for the purpose of recovery of tax in the extended

period as well as for imposition of penalty.

We observe that the word ""suppression"" itself denotes a mala fide mind, there can be no 'suppression' without an intent to evade payment of service

tax. The Courts in various cases have held that non-disclosure of a fact cannot be equated with suppression. As such. Non-intimation can be without a

ma/a fide but a suppression has to be always with mala fide and it does not further require the adjective of ""with intend to evade"" in the legislation

itself. Admittedly, the demand of duty having been raised by invoking the longer period of limitation in the first Show Cause Notice dated 20.10.2010 is

barred by limitation to the major extent even though a part may fall within the limitation and the second Show Cause Notice would be within the

limitation.

In view of our foregoing discussions, we set aside the impugned order confirming the demand of service tax and interest and imposing penalties

upon the appellants. Accordingly, their appeal is allowed with the consequential relief to them.

As regard, the Revenue's appeal, we find that the Commissioner has dropped the same by observing that the appellants have established branch

office/franchise unit and has appointed sub-brokers in Jammu & Kashmir for doing trading activities for their clients based in Jammu & Kashmir. He

has scrutinised the agreement entered into by the appellants with various Jammu & Kashmir sub-brokers and has come to a conclusion that in as

much as they were appointed and authorised by the assessee for dealing, assisting, buying and selling the securities for the investors situated in Jammu

& Kashmir, which seems to be the sole purpose of the appointments, it has to be held that services were provided in Jammu & Kashmir for the people

of Jammu & Kashmir. In terms of Section 64 of the Act, the discharging of service tax has been made exempted for the purpose of whole of Jammu

& Kashmir region. Merely because the accounts for such services were being maintained in New Delhi/Gurgaon/Noida offices, for the sake of

facility and maintaining a control on its finance, such services rendered in the State of Jammu & Kashmir cannot be held to be taxable.

We do not find any infirmity in the said order of the Commissioner. Admittedly, the service is a destination based tax. The said services, which are

being provided by various sub-brokers located in Jammu & Kashmir to the people of Jammu & Kashmir, would not be taxable in terms of Section 64

of the Finance Act, 1994. The Board vide its Circular dated 17.08.2004 has clarified that in as much as service tax is a destination based consumption

tax and the principle of consumption of service would determine the liability of service tax, the insurance services rendered by New India Assurance

Company Ltd., Jammu to the clients having assets in the State of Jammu & Kashmir by their Jammu Branch are not liable to service tax. The

Revenue in their Memo of Appeals given no reasons to deviate from the above finding of the Commissioner (Appeals). Accordingly, the appeal filed

by the Revenue is rejected.

Both the appeals are disposed of in the above manner.

Pronounced on 21/2/14