Service provided by Sub-broker - whether chargeable to Service tax under BAS service

PJ/Case Laws/2011-12/1539

Case: M/s C M GOENKA & CO. VS CCE, JAIPUR-I

Citation: 2012-TIOL-109-CESTAT-DEL

Issue:- Whether activity of sub-broker during disputed period was BAS and chargeable to service tax when main broker has paid service tax on gross amount of brokerage charged by him from ultimate client including commission paid to sub-broker?

Brief Facts:- Appellant was registered with SEBI as sub-broker. Period of dispute is from April 2005 to June 2006. During the period of dispute, as per the SEBI guidelines, even though a transaction of sale or purchase of a security was through a sub-broker, it was only the main broker who could issue the transaction note and could issue the bill to the client for the total amount of brokerage. Prior to April 2005 in the cases of transaction through sub-brokers, while the sub-brokers used to issue bill to the client for their brokerage, stock brokers used to bill the sub-brokers and as such the brokerage was being charged by both the sub-broker as well as stock broker in their respective bills and both were making separate payment of service tax to the Government. However, with effect from April 2005 as per the new SEBI guidelines, the bills for brokerage could be raised only by the main broker and the sub-broker would get only commission, which was part of the gross amount of brokerage.

Department was of the view that during the period from April 2005 to June 2006, the activity of appellant i.e. bringing clients to the main broker for which they were getting commission from the main broker was Business Auxiliary Service, taxable under Section 65 (105) (zzb) of the Finance Act, 1994, read with Section 65 (19) ibid. Accordingly, show cause notice was issued to the appellant for demand allegedly short paid service tax along with interest on the amount of brokerage/commission received by the appellant from their broker and also proposed imposition of penalty on appellant under Section 76 and 78 of the Finance Act, 1994.

The Assistant Commissioner vide order confirmed the demand against the appellant along with interest and imposed penalty both under Section 76 and 78 of the Finance Act, 1994.

In appeal, the Commissioner (Appeals) upheld the order of the Assistant Commissioner. Against the order of the Commissioner (Appeals), appellant have filed appeal before the Tribunal.

Appellant’s Contention:- Appellant pleaded that they are sub-broker and since April 2005, in respect of all transactions of purchase and sale of securities through sub-broker, it is the main broker who issues transaction note and charges brokerage, a part of which is shared by him with the sub-broker i.e. the appellant by virtue of the definition of broker under Section 65 (101) of the Finance Act, 1994, as it stood during the disputed period were covered by the definition of broker and the service provided by them is service in connection with sale or purchase of securities listed on recognized stock exchange and same cannot be Business Auxiliary Service under Section 65 (105) (zzb). The main broker was paying service tax on the gross amount of brokerage charged by him from the ultimate client including the amount, which was being given by him (the broker) to the appellant (sub-broker). That in view of this, on the same amount service tax cannot be charged in the hand of the appellant as sub-broker. That the appellant's activity as sub-broker during the period of dispute could not be charged to service tax again.

In this regard, reliance is placed on judgment of the Larger Bench of the Tribunal in the case of Vijay Sharma & Co. vs. CCE, Chandigarh [2010 (20) S.T.R. 309 (Tri.-LB)] wherein it was held that sub-broker cannot be denied to be set off against the ultimate service tax liability of the stock broker, if the stock broker is liable to service tax for the self same transaction, but such set off depends upon facts and circumstances of each case and subject to verification of evidence as well as the rules made under the law w.e.f. 10/9/04. It was contended that this judgment of the Larger Bench has not been considered in the impugned order while in view of this judgment, there would be no service tax liability on the appellant.

Respondent’s Contention:- Revenue department contended that the activity of appellant is essentially marketing the services of brokers and, hence, the same would be chargeable to service tax as Business Auxiliary Service under Section 65 (105) (zzb) read with Section 65 (19) of the Finance Act, 1994.

Reasoning of Judgment:- The Tribunal considered the definition of stock broker as given in Section 65 (101) of the Finance Act, 1994 during the disputed period. It was noted that under Section 65 (105) (a) of the Finance Act, 1994, the taxable service in respect of stock broker/sub-broker means service provided or to be provided to any person by a stock broker in connection with the sale or purchase of securities listed on a recognized stock exchange. The appellant, being a sub-broker are obviously covered by the definition of stock broker and even as sub-broker, their activity in connection with sale or purchase of securities listed on stock exchange for their clients has to be treated as service provided by stock broker in connection with sale or purchase of securities covered by Section 65 (105) (a).

Accordingly, the Tribunal was of the view that appellant have to be treated as a broker and the service provided by them is service of stock broker in connection with sale or purchase of securities listed on stock exchange for their clients and since during the disputed period it is the main broker who was issuing transaction note and was receiving commission from the client, a part of which was received by the appellant as a sub-broker, the question as to whether part of brokerage received by them sub-broker from main broker would attract service tax has to be answered in the light of the Tribunal (Larger Bench)'s judgment on this issue in the case of Vijay Sharma & Co. vs. CCE, Chandigarh after ascertaining as to whether the main broker had paid service tax on the gross amount charged by him or had paid service tax only on the amount of brokerage retained by him.

The Tribunal noted that the judgment of the Larger Bench was not discussed in the impugned order and therefore, is not sustainable. Impugned order set aside and matter remanded to the Commissioner (Appeals) for denovo decision.

Decision:- Appeal allowed by way of remand.

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PJ/Case Laws/2011-12/1539

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