Amount collected by stock broker not liable to ST if such amount remitted to stock exchange: CESTAT

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M/s V. Padmanabhan, Technical Member being a stock broker had appointed several sub-brokers. And he has admitted the Service Tax demand under the categories of “Storage and Warehouse Services” for Rs. 5,44,074/- as well as under renting of immovable property for Rs. 1,77,449/-. The tax demand to the extent above has already been paid and is not being challenged in the present case.

  1. Where assessee stock-broker, collected transaction charges, account opening charges, LD charges, SEBI charges, etc. from customers, and remitted same to concerned stock exchange, assessee was not liable for service tax on same under category of ‘stock-broker.
  2.  Where assessee, a stock-broker, had appointed sub-brokers and it had set up a virtual private network (VPN) to provide facilities for interconnection of sub-brokers with it and, in turn, to access stock exchanges and it recovered a part of cost incurred for VPN from sub-brokers, said cost recovered from sub-brokers was not liable to payment of service tax under category of ‘business support services’ The appellant relied the case of Gujarat State Fertilizers & Chemicals Ltd.v. CCE.
  3. Where assessee, a stock-broker, had received consideration for development and maintenance of computer software to its customers, said consideration was not liable for service tax under category of ‘management, maintenance or repair service’.
  4. Where assessee had set up a facilitation centre for NSDL and remitted entire consideration received from clients to NSDL, who in turn had discharged service tax in full, said consideration was not liable for service tax in hands of assessee under category of ‘on-line information and database access or retrieval’.
  5. Where assessee had received certain amount from NSDL by way of reimbursement of charges, said charges were not liable for service tax under category of ‘on-line information and database access or retrieval’.
  6. Where assessee had acted as Registrar to an issue as well as share transfer agent and it, in addition to commission, also received certain amount by way of reimbursement of expenses, said reimbursement amount was not liable for service tax under category of ‘business auxiliary service’.
  7. Where assessee had functioned as a depository participant of NSDL and in addition to fees received from investors, it also collected DEMAT charges, slip rejection charges, etc. and paid same to NSDL at actuals, said charges were not liable for service tax under category of ‘banking and other financial services’.
  8. Where assessee had acted as an agent of NSDL and it recovered charges from clients and remitted same to NSDL and NSDL had discharged service tax thereon, said charges were not liable for service tax in assessee’s hand under category of ‘business auxiliary service’.
  9. Where assessee, a stock-broker, had set up a Virtual Private Network (VPN) for connecting sub-brokers with itself and also for maintaining connection with stock exchanges, it was eligible for cenvat credit of service tax paid on VPN rent.
  10. Where assessee had paid service tax on storage and warehousing services, it was eligible for credit of service tax so paid.
  11. Where assessee had paid service tax on digitization charges, it was eligible for credit of service tax so paid because the trading of security in the stock exchange is being carried out only through electronic means by establishing on-line connection to the stock exchange. Since VPN has been used for such purpose, the cenvat credit on the Service Tax paid of the service cannot be denied. Hence, the demand is set aside.

Citation: [2018] 96 taxmann.com 630 (New Delhi – CESTAT)

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