Office of the Commissioner (Appeals-Iv)

3 V2(ST)99/A-IV/2012

ORDER-IN-APPEAL

M/s Rajvi Stock Broking Limited ,having their office located at G-2, Block- B, Jaldarshan Commercial Building, Opp. Natraj Cinema, Ashram Road, Ahmedabad- 380009 (hereinafter referred to as “the appellants”), filed an appeal along with stay application against Order-in-Original No. 75/STC-AHD/AC(MP)/2011-12 dated 13.01.2012 (hereinafter referred to as “the impugned order”) passed by the Assistant Commissioner, Service Tax (HQ), Ahmedabad (hereinafter referred to as “the adjudicating authority”).

2. The facts of the case, in brief, are that the appellants are engaged in providing service under the category of ‘Stock Broker Services’ and ‘Banking and Finance Services’ as defined under Section 65 of the Finance Act, 1994 (hereinafter referred to as “the Act”) and hold Service Tax Registrations No. AACCR7199AST001. During the course of audit It was observed that during the period of 01.10.2007 to 15.05.2008, the appellants had not paid service tax to the extent of Rs.6,824/- on certain amount received on account of “SEBI Turnover Fee charges and NSE / BSE transaction charges” which forms integral part of their service viz. Stock Broker Service. Similarly, it was observed that during the F.Y.2008-2009, they had short paid Service Tax to the extent of Rs.3,396/- on the amount recovered from their customers as “Auction Charges”. It was further noticed that they had wrongly availed Cenvat credit of Rs.12,978/- in respect of Bill No.27 dated 15.06.2008 issued by M/s Bhavani Caterers in respect of outdoor catering service on which Service Tax Registration No. was not mentioned. Also, the outdoor catering service provided by M/s Bhavani Caterers was not considered as input service as it had no relationship with the services provided by the appellant.

3. In view of the aforesaid non payment of service tax, a Show Cause Notice was issued to the appellant which was adjudicated by the adjudicating authority vide the impugned order. The adjudicating authority confirmed the demand of Service Tax Rs.6,824/- under Stock Broking Service and Service Tax Rs.3,396/- 4 V2(ST)99/A-IV/2012 under Auctioneer’s Service under Section 73(1) of the Finance Act, 1994. Further, wrongly availed Cenvat credit of Service Tax Rs.12,978/- in respect of Outdoor Catering Service was also disallowed and ordered to be recovered under Rule 14 of Cenvat Credit Rules,2004 read with Section 73(1) of the Finance Act, 1994. The adjudicating authority ordered to pay interest under Section 75 and also imposed penalties under Section 76, 77 and 78 of the Act on the amounts of Service Tax not paid / short paid and Cenvat credit of Service Tax wrongly availed.

4. Being aggrieved with the impugned order, the appellants preferred the present appeal along with stay application. The appellants mainly contended that the provisions of Section 73 of the Act are inapplicable to the facts of the instant case; that NSE/BSE charges are collected under statutory obligation not liable to be included in the gross value of taxable service provided or to be provided under Rule 5(2) of Service Tax (Determination of Value) Rules, 2006; that the amounts received by the appellants is received as “Pure Agent” for and on behalf of NSE/BSE, under a statutory obligation and in respect of transactions executed for and on behalf of clients and they are just an agency to collect such charges, since it will be difficult for Stock Exchanges to collect said charges directly from respective customers; that adjudicating authority has erred in concluding that NSE / BSE Transaction charges collected by the appellant as “Pure Agent” is value of consideration for providing taxable service defined under Section 65(105) (a) of the Act; that Auction Charges are for non fulfillment of commitment of delivery schedule and which are in the nature of penal and not a service, hence these are not includible in Stock Broker Service; that they had availed Cenvat credit of service tax on catering service which is for development and promotion of stock broker business, hence Cenvat credit of such service is available to them. The appellants further contented that the adjudicating authority has erred in confirming the demand along with interest and penalties under Sections 76, 77 and 78 of the Act and requested to set aside the impugned order. The appellant had relied upon various judgments In support of their contentions. In their stay application, the appellants, under the same grounds, requested to give stay 5 V2(ST)99/A-IV/2012 on the demand of service tax and penalties imposed under the impugned order as prima-facie they have a case in their favour.

5. Personal hearing was held in the case on 27.03.2012, wherein Shri Vipul B. Khandhar, C.A., appeared on behalf of the appellants and re-iterated the points stated in the grounds of appeal. He stated that w.e.f. 16.05.2008, a separate levy has been imposed on the stock exchange service; hence, there is no liability of service tax for the period prior to it. He further stated that Auction Charges are for non fulfillment of commitment of delivery schedule and which are in the nature of penal and not a service, hence these are not includible in Stock Broker Service. He stated that they had availed Cenvat credit of service tax on catering service which is for development and promotion of stock broker business, hence Cenvat credit on such service is admissible. Thus he contended that the issue may be decided on merits and requested to set aside the impugned OIO.

DISCUSSION AND FINDINGS

6. I have carefully gone through the facts of the case on records, grounds of appeal in the Appeal Memorandum, Stay application and oral submissions made by the appellants at the time of personal hearing and my findings are given below.

7. The appellants contented that the NSE/BSE transaction charges and SEBI Turnover Fees collected by them from their clients are actual reimbursement of similar charges paid by them to BSE and do not form part of taxable value and hence not liable to be included for the purpose of computing the gross value for payment of Service Tax. I find that the appellants are in the business of “Stock Broker Service” and from the records and as per the definition of taxable service under Section 65(105)(a), these charges collected by them are in connection with the sale or purchase of securities listed on a recognized stock exchange. Further, it can be seen from the NSE website that in addition to annual fees, NSE members are required to 6 V2(ST)99/A-IV/2012 pay transaction charges on trades undertaken by them. The members are required to pay transaction charge at the rate of Rs. 3.5 for every Rs. 1 lakh of turnover in the Capital Market segment. The transaction charges payable to the exchange by the trading member for the trades executed by them on the F&O segment are fixed at the rate of Rs. 2 per lakh of turnover (0.002%) subject to a minimum of Rs. 1,00,000 per year. At BSE, these fees differ according to various types of members. The fee is levied by stock exchanges for the services rendered by stock broker to his client through/in the stock exchange. Thus, it is clear that no sale or purchase of security is possible without bringing the stock exchange into picture. For that reason every stock exchange levies transaction charges on all trades. As per SEBI Regulations, the said transaction charges are the liability of stock brokers or sub-brokers as the case may be and is not the liability of buyer or seller of securities. Hence it cannot be held that these charges are reimbursement charges and paid on behalf of the buyer or seller. In the case of “SEBI Turnover Fees” also, the liability to pay the same is cast upon the brokers only. In this instance also the buyer or seller of the security are not actually liable to pay the said fees. It is apparent that the appellants have charged and collected BSE transaction charges and SEBI Turnover fees from their customers/client. In view of the provisions of Section 67 of the Finance Act, 1994 which states that the taxable value of stock broking service is the gross amount charged by the service provider, I agree with the findings of the adjudicating authority that NSE/BSE transaction charges and SEBI Turnover fees collected by appellants from their clients / customers form integral part of the taxable value and cannot be excluded for the purpose of computing their Service Tax liability. No deduction on account of transaction charges or any other charges are therefore allowable whether the same is reimbursed at actual or otherwise. The appellants have cited the decision in the case of M/s First Securities Private Limited. I find that the said decision is related to Handling charges which is different from the present issue. Hence I do not find any infirmity with the order of the adjudicating authority in confirming the demand of service tax alongwith interest and penalties thereon. 7 V2(ST)99/A-IV/2012

8. To provide a taxable service, a service provider incurs certain costs in the course of providing a taxable service and may indicate these items separately on the invoices to the recipient of service. In such case, the service provider is not acting as ‘an agent’ of the recipient of service but procures input or input service on his own account for providing the taxable service. Further, CBEC vide its letter F.No. 187/107/2010-CX 4 dated 17.09.2010 has clarified the matter of inclusion of NSE/BSE transaction and other charges in the taxable value as under “Turnover charges, NSE/BSE/NSDL/CSDL transaction charges, DEMAT charges and SEBI fees that are recovered by the brokers from their clients are found to be includible in the taxable value for payment of service tax. The Security Transaction Tax (STT) and Stamp duty are not includible in the taxable value for charging service tax”. It further clarifies that “4. Since the Stamp duty and security Transaction Tax, are the liability of the buyer/seller of securities and the broker pays the same acting as a Pure Agent, the same are not includible in the taxable amount in terms of Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006. All other charges by whatever name called, recovered by the broker from the buyer/seller of securities are includible in the taxable value in terms of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006”. I find that Board’s above letter is clarificatory in nature which confirm or support the one which have already existed. Section 67 says taxable value of stock broking service is the gross amount charged by the service provider and Board’s above letter further clarifies the other charges which are includable in the value of taxable service. Thus the contention of the appellants is baseless and erroneous and the case law relied upon in this regard does not support their claim.

9. I find that the appellant had collected Auction charges from their customers during the F.Y.2008-2009 amounting to Rs.1,18,783/-. Out of this, they had already paid Service Tax on the value of Rs.91,305/- for the period from 17.05.2008 to 31.03.2009. However, they had not paid Service Tax on the value of Rs.27,479/- for the period of 01.04.2008 to 16.05.2008. 8 V2(ST)99/A-IV/2012

Section 65 (105) (zzzr) of Finance Act, 1994 defines the Auction service as :- “Taxable Service” means any service provided or to be provided to any person, by any other person, in relation to auction of property, movable or immovable, tangible or intangible, in any manner, but does not include auction of property under the directions or orders of a court of law or auction by the Government;

The appellant has contended that Auction Charges are for non fulfillment of commitment of delivery schedule and which are in the nature of penal and not a service, hence these are not includible in Stock Broker Service. However, I find that the appellant has not produced any documentary evidence in support of their claim. Hence, in view of the above definition, I agree with the findings of the adjudicating authority that Auction charges collected by the appellant from their customers during the period of 01.04.2008 to 16.05.2008 are to be treated as taxable value under the category of Auction Service.

10. The appellant had availed Cenvat credit of Rs.12,978/- in respect of Bill No.27 dated 15.06.2008 issued by M/s Bhavani Caterers in respect of outdoor catering service. I find that the appellant has not produced any documentary evidence / submission to prove that the said service was used / required for providing their output service. Further, the bill on which Cenvat credit was availed by the appellant did not mentioned the Service Tax Registration No. of the service provider, hence, such a document is not considered a valid document for availing Cenvat credit in terms of Rule 9(1) of Cenvat Credit Rules,2004. In view of the above, I agree with the findings of the adjudicating authority that the appellant has wrongly availed Cenvat credit of Rs.12,978/- in respect of outdoor catering service and hence, same is required to recovered alongwith interest and penalties.

9 V2(ST)99/A-IV/2012

11. The appellants pleaded that in their case suppression is not applicable and hence the extended period cannot be invoked for recovery of service tax. The appellants have also relied upon some case laws in the matter of imposing penalties. It can be seen that the relevant law provisions makes it clear that the gross amount charged by the appellants for service provided in connection with the sale or purchase of securities listed on a recognized stock exchange is taxable amount. Even though they are well aware of the fact that the above charges are their own liabilities, they continued not to pay service tax on the amount collected from their various clients on above account with impunity for this length of time. The departmental investigation needed to unearth the suppression on the part of the appellants. This proved their intention to evade the tax. The appellants were supposed to comply with the law and provisions voluntarily, in which they have failed. Inaction on part of the appellants, on any account, equally amounts to suppression and I hold that the imposition of penalty under Section 78 is imposable for suppressing the facts from the department and extended period has rightly been invoked in this case. The case law relied upon by the appellant is not applicable as it is a fact that the appellants are not new to the service tax and there cannot be any interpretational dilemma regarding its classification or its taxability and if at all there was any confusion in respect of their eligibility they could have approached the department for its clarification. But instead of approaching the department, the appellants felt it convenient not to disclose the same to the service tax department and so suppression with intent to evade payment of service tax has been proved beyond doubt.

12. Penalty under Section 77 is imposable for non filing of Service Tax returns. I find that the appellant has failed to file the periodical Service Tax returns in respect of Auctioneer’s service, hence, I agree with the findings of the adjudicating authority that Penalty under Section 77 is imposable on them. 10 V2(ST)99/A-IV/2012

13. The appellants further contented that the adjudicating authority has erred in imposing penalty under Sections 76 and 78 being mutually exclusive. Section 76 provides penalty for failure to pay service tax in accordance with the provisions of Section 68 of the Act whereas Section 78 relates to penalty for suppression of the value of taxable service. The incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even without suppressing the value of taxable service, the person liable to pay service tax fails to pay. With effect from 10.05.2008, if Penalty is imposed under Section 78, then Penalty is not imposable under Section 76. I find that the period involved in this appeal is from 01.10.2007 to 15.05.2008. As most of the period involved is prior to 10.05.2008 (only 5 days after 10.05.2008), the amended provision is not applicable to this case. Therefore, I agree with the findings of the adjudicating authority that Penalty can certainly be imposed on erring persons under both the above Sections.

In view of the above discussion and findings, I pass the following order.

14. I uphold the order passed by the adjudicating authority and reject the appeal filed by the appellants. The stay application of the appellants is also disposed off accordingly.

Sd/- (27.04.2012)

(K. ANPAZHAKAN) COMMISSIONER (APPEAL-IV) CENTRAL EXCISE, AHMEDABAD.

ATTESTED Date:27.04.2012

(H.K.JAIN) SUPERINTENDENT (APPEAL-IV) CENTRAL EXCISE, AHMEDABAD. 11 V2(ST)99/A-IV/2012

To, (By R.P.A.D)

M/s Rajvi Stock Broking Limited, G-2, Block-B, Jaldarshan Commercial Building, Opp. Natraj Cinema, Ashram Road, Ahmedabad-380009

COPY TO:-

1. The Chief Commissioner, Central Excise, Ahmedabad Zone, Ahmedabad. 2. The Commissioner, Service Tax, Ahmedabad. 3. The Assistant Commissioner, Service Tax, Division-III, Ahmedabad. 4. The Assistant Commissioner, (Systems), Service Tax, Ahmedabad. 5. Guard file. 6. P.A. file.