[ India Service Tax Index ] [ I Love Hyderabad ]

Indian Service Tax

Clarifications

[TN No. 3/94-ST, dated 19/10/1994 of the Indore Collectorate]

Attention of the Trade is invited that certain doubts have been expressed by the trade and the field formations, requiring clarification from the Board. After considering the reports of the Collectorates, following clarifications are being issued:

It has been represented by Collector of Central Excise, Kanpur that a Stock Broker registered with Kanpur Stock Exchange and is having his office branch outside the jurisdiction of Collectorate of Central Excise, Kanpur. Whether the Stock Broker should apply for registration in Kanpur Collectorate for his office outside the jurisdiction of Collectorate of Central Excise, Kanpur or with the Collectorate where his branch office is located.
Decision: A Broker who is registered with Kanpur Stock Exchange has to apply for registration with Collectorate of Central Excise, Kanpur. All the offices of this broker irrespective of location will be registered with Collectorate of Centra] Excise, Kanpur.
Wheter sub-brokers are covered by Service Tax?
Decision: At present sub-brokers are not covered.
Collector of Central Excise, Bolpur has raised the point that Sikkim Stock Exchange has not yet been recognised and whether Service Tax can be collected for the transaction in Sikkim Stock Exchange.
Decision: Service Tax is required to be collected from Stock Brokers. Stock-Broker has been defined in the Act itself i.e. stock broker means a stock broker who has either made an application for registration or is registered as a stock-broker in accordance with the rules and regulation made under the Securities & Exchange Board of India Act, 1992. Hence, all stock-brokers in the jurisdiction of Collectorate of Central Excise, Bolpur will be governed by service tax scheme.
Whether the amount of Service Tax charged/collected is required to be shown separately in the Contract Note/Bill?
Decision: It is desirable for the reasons for transparency that Service Tax charged/collected is shown separately in the Contract Note/Bills.
Collector of Central Excise, Calcutta-I has raised the point that service brokers are engaged as underwriters. These Service Brokers are receiving commission for the Company which floats its securities into the market. Whether Service Tax is required to be levied on this commission?
Decision: Taxable service means any service provided to an investor, by a stock-broker in connection with the sale or purchase of securities listed on a recognised stock exchange. The commission charged by stock-broker as underwriters is for floating securities. Hence, it is not covered.

Jobbing, Own Trading etc.

Cir. No. 20/14/96-ST, Date: 31/12/1996

Sub: Service Tax - Transaction amounting to taxable service subject to service tax.

The Trade is hereby informed that certain doubts whether the following transactions amount to taxable service subject to service tax have been raised for clarification from the Board:

(A) Jobbing - Transactions entered on principal to principal basis between member brokers of the same stock exchange.

(B) Own Trading - Transactions entered on their own account by the brokers.

(C) Arbitrace - Transactions entered into by two brokers of different stock exchange in order to profit from price difference between two markets.

2. The matter has been examined by the Board in consultation with other field formations. As per Section 65 (6) of Finance Act, 1994, taxable service means any service provide to an invest by a stock broker in connection with the sale or purchase of securities listed at recognised stock exchange. In view of this definition, the points raised above are clarified below:

(A) When the transaction is on principal to principal basis between brokers, no investor is involved and as such no taxable service is provided and therefore, no service tax is chargeable.

(B) Where a broker enters into a transaction on his own account with an investor who is a non-member of the stock exchange the service provided will be taxable service and subject to service tax.

(C) In case of arbitrage transaction i.e. the transaction between two brokers of different stock exchanges, the service is provided by a broker i.e. the member of a stock exchange to a non-member of that stock exchange even though the investor may be a member of another stock exchange. Their being an investor involved in the transaction, the service so provided to the investor will be a taxable service subject to service tax.

Registration with NSE

Cir. No. 12/6/96, Dated: 16/9/1996

Sub: Service Tax - Registration of Stock Brokers of National Stock Exchange.

I am directed to refer to Para 1 of Board's Service Tax Circular No. 4/4/ 94, dated 6/9/1994, wherein it was clarified that a stock broker registered with a particular Stock Exchange has to apply for registration with the Commissioner of Central Excise having jurisdiction over the place in which the concerned Stock Exchange is situated, irrespective of whether all offices of the stock broker are situated within or outside the jurisdiction of the said Commissionerate. Doubts have been expressed regarding registration of members/Stock Brokers of National Stock Exchange having its Headquarters at Mumbai.

2. The matter have been examined by the Board. National Stock Exchange permits its members to operate from any part of India through satellite network owned, operated any managed by National Stock Exchange using Very Small Aperture Terminals (VSAT) installed at trading members office whereas the members of local stock exchange is required to carry on business compulsorily within the jurisdiction of the said Stock Exchange where he is registered.

3. Board is of the view that Trading members/Stock Brokers of National Stock Exchange will have to register their premises with the Central Excise Commissionerate having the jurisdiction over the place where trading membership is granted and infrastructural facilities are provided for installing the Very Small Aperture Terminals and operating the business.

Registration with OTCEI

[TN No. 141/96, dated 4-12-1996 of Cochin Commissionerate]

Sub:- Service Tax - Registration of Members/Dealers Over the Counter Exchange of India (OTCEI).

Attention is invited to this office Trade Notice No. 113/96, dated 14/10/1996 wherein it has been decided that Trading Members/Stock Brokers of National Stock Exchange will have to register their premises with the Central Excise Commissionerate having jurisdiction over the place from where trading member operate their business.

The above instructions will apply mutatis mutandis to the members/dealers of Over the Counter Exchange of India (OTCEI). Thus the members and dealers of OTCEI are required to register with Central Excise Commissionerate having jurisdiction over the place of operation of their business. Similarly if domestic stock exchanges allow trading by members/dealers through computers from other centres outside their jurisdiction (viz. BOLT) such members/dealers are required to be registered with the Central Excise Commissionerate having jurisdiction over the place of operation of their business. It may also be noted that even if the member/dealer has registered himself as a stock broker of a conventional stock exchange for transaction of securities of that stock exchange, he has to separately apply for registration as a member/dealer ofOTCEI, National Stock Exchange etc. for sale or purchase of securities listed on such exchange.

Double Taxation

[Trade Notice No. 63/96, dated June, 1996 of the Pune Commissionerate]

Sub: Service Tax - Buying/Selling of securities by a Member of one stock exchange through a member of another. Stock exchange on behalf of an investor - Regarding.

Certain doubts were expressed regarding 'whether Service Tax is chargeable at both the ends, when an investor is provided with taxable service by two brokers of different stock exchanger' by various quarters.

The situation envisaged is as under:

If a Calcutta based investor buys a security quoted on the Bombay stock exchange through his broker in Calcutta, he ends up paying service tax twice, first to the Bombay stock exchange broker & then to the Calcutta stock exchange broker through whom the initial order was placed. In a situation like this, it has been represented that, it amounts to double taxation on a transaction of one' single security.

The matter has been examined by the Board. According to Section 66 of the Finance Act, 1994, the Service Tax is to be charged at the rate of 5% of the 'Value of taxable service'. In respect of sale & purchase of securities, taxable service means any service provided to an investor by a stock broker in connection with the sale or purchase of securities listed on a recognised stock exchange. The valuation of taxable service in relation to service provided by a stock broker to an investor shall be the aggregate commission or brokerage charged by him on the sale or purchase of securities.

In the situation pointed out above, the investor is provided with taxable service by two brokers. First by the Bombay stock exchange broker through the Calcutta stock exchange broker and then by the Calcutta stock exchange broker.

Since, the Commissionlbrokerage is charged at both the ends, the charge of service tax at both the ends is both conceptually & legally correct. The investor placed his order for buying a security quoted at the Bombay stock exchange for the reason that either it is not available at the Calcutta stock exchange or the price is more beneficial at the Bombay stock exchange. It is open to the investor to either place his order on the Bombay stock exchange broker direct or through his Calcutta stock exchange broker. In the former case, he would have to pay service tax only on the service provided by the Bombay stock exchange broker. In the latter case, he pays higher commission paid to him by the Calcutta stock exchange broker which includes the brokerage of the Bombay stock exchange broker also for the service provided to him at both the exchanges through the Calcutta stock exchange broker. It can't therefore be said that the investor is paying service tax twice. The investor in fact, pays double commission for avoiding the hassless involved in going to the Bombay stock exchange broker direct.

The service tax being the percentage of the brokerage charged trom the investor there is no double taxation involved. Service tax charged is only incidental to the charging of the commissionlbrokerage charged by the brokers.

It is, therefore, clarified that charging of service tax from an investor who is provided with taxable service by two brokers of different stock exchanges does not amount to double taxation.

Showing Brokerage Separately

Cir. No. 15/9/1996, Date: 4/10/1996

Sub: Service Tax - Showing of Service Tax on brokerage separately on the Bill.

Certain doubts have been expressed regarding showing Service Tax collected/charged separately, on the contract notelbills.

It was earlier clarified by the Board, that, it is desirable for the reasons for transparency, that, Service Tax charged/collected is shown separately in the contract notelbills.

The matter has been re-examined by the Board. It has been observed that there is lack of uniformity in showing Service Tax collected/charged separately on the contract notes or bills. Hence, to avoid non-uniformity of practice it has been further clarified by the Board that, the Stock Brokers should prominently indicate the amount of Service Tax in the Bill relating to sale or purchase of securities.

M/s. Pune Stock Exchange Co. Ltd./National Stock Exchange & OTCEI are requested to bring the contents of this trade notice to the noticeoftheir Stock brokers/trading members/& dealers.

Notification

Prior to 10/9/2004

[Notification No. 25/2004-ST, dated 10/9/2004]

Forfull text see under "Banking & Other Financial Services".

Case Law

No service tax when one stock broker sells stock to another stock broker - 1999 (110) ELT 925 (New Delhi - Cegat).

No tax if brokerage includes service tax - 1996 (88) ELT 566 (Mumbai- Cegat).

No levyofservice taxonnotional amount - 1998 (98) ELT 515 (Ca1. Cegat).