Stock
Broker's services were brought under the Service Tax net by the Finance Act,
1994 (32 of 1994) w.e.f. 1-7-1994 Vide Notification No. 1/94, dated
28-6-1994. The service shall be taxed, if provided by a stock-broker
to any person.
Rate of Service Tax: The rate
of service tax is specified in section 66 of the Act. The Finance (No. 2) Act,
2004 has substituted the charging section 66, and the rate of service tax is
enhanced from 8% to 10% ad valorem. The increase in tax rate has come into
force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004.
Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also
levied an education cess @ 2 % of the service tax. The cess paid on inputs
services shall be available as credit for payment of cess on output services.
For further discussion in this regard, refer to Chapter -'Payment of
Service Tax'.
Stock-broker's
services covered under the service tax are the sale or purchase of securities listed
on a recognized stock exchange by the stock-broker to any person.
(1) Whether services rendered as underwriters
are Stock-broker's services?
No, the
department in its Trade Notice No. 3/94-ST, dated 19-10-1994,
Indore Commissionerate (appended as Annexure 1) has clarified, "the
Commission charged by stock-broker as underwriter is for floating
securities. Hence, it is not covered" under the service tax. However, the
reader may note that 'underwriter services' have been taxed separately w.e.f.
16-10-1998, for detailed discussion refer to Chapter 'Underwriter
services' of this book.
The
definition of taxable service provided by a stock-broker has been given
under sub-clause (a) of clause (105) of section 65. That is:
any
service provided "to any person, by a stock-broker in connection
with the sale or purchase of securities listed on a recognized stock
exchange".
The
Finance (No. 2) Act, 2004 has made change in the definition of taxable service
and substituted the words "to any person" in place of "to an
investor" to enlarge the scope of service tax and remove doubt about the
taxability of stock broker service when service is provided to a person other
than investor.
(1) Whether 'Jobbing' is taxable service?
No, a
jobber is dealer in securities and sells and purchased securities in his own name with a view to earn profit due to price fluctuations. He
is a specialized speculator. The Board in its Circular No. 20/14/96, dated 31-12-1996
(appended as Annexure II) has clarified, "when the transaction is on
principal to principal basis between brokers (of same stock exchange), no
investor is involved and as such, no taxable services are provided and,
therefore, no service tax is chargeable".
(2) Whether 'Own trading' is taxable service?
Yes, the
Board in its Circular No. 20/14/96, dated 31-12-1996 (appended as
Annexure II) has clarified, "where a broker enters into a transaction on
his own account with an investor who is non-member of the stock exchange,
the service provided will be taxable services and subject to service tax".
(3) Whether 'Arbitrage' is taxable service?
Yes,
'Arbitrage' means buying the security in one market at the lower price with a
view to selling them at a higher price in another market thereby bagging the
profit. The Board in its Circular No. 20/14/96, dated 31-12-1996
(appended as Annexure 11) has clarified, "in a 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.
There being an investor involved in the transaction, the service so provided to
the investor will be a taxable service subject to service tax". But,
Tribunal held that the charging of brokerage by a broker of one exchange to a
broker of another exchange does not convert the latter from his status as a
broker into an investor. Therefore, it is not covered under service tax [U.S.
Choudhary v Collector of Central Excise, Kanpur 1999 (110) ELT 925 (Tribunal-Delhi)].
To overcome the decision of the Tribunal in the aforesaid case, the Finance
(No. 2) Bill, 2004 has proposed to make change in the definition of taxable
service and substituted the word "to any person" in place of "to
an investor".
Service
tax is liable to be paid when stock-broker's services are provided by a
stock-broker.
(1) 'Stock-broker'
The
definition of stock-broker has been given under clause (101) of section
65. It provides:
"Stock-broker
means a stock-broker who has either made an application for registration
or is registered as a stock-broker or sub-broker, as the case may
be, in accordance with the rules and regulations trade under the Securities and
Exchange Board of India Act, 1992".
The
Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has made change in the
definition of stock broker to include 'sub-brokers', however, the
definition of sub-broker is proposed to be omitted. Hitherto service tax
was leviable only on the service provided by a stock broker, other than sub-broker.
The definition of stock-broker is being changed to include 'sub-broker'
in its scope and the taxable service is being defined as service provided to
any person by a stock broker. Thus, the service provided by a sub-broker
to his stock broker will also become taxable. However, in such case service tax
credit will be available as usual.
As per the aforesaid definition, a stock-broker to include 'sub-brokers'
must fulfil the following conditions:
1.
applied for registration or
2.
registered as a stock broker
in
accordance with rules and regulations made under the Securities and Exchange
Board of India Act, 1992.
(2) 'Application and registration of stock-broker
under SEBI’
As per sub-section
(1) of Section 12 of the Securities and Exchange Board of India Act, 1992
(SEBI), no stock-broker or sub-broker "shall buy, sell and
deal in securities except under, and in accordance with, the conditions of a
certification of registration obtained from the Board in accordance with the
regulation made under this Act". Sub-section (2) of section 12
states 'every application for registration shall be in such manner and on
Payment of such fee as may be determined by regulations'.
As per
Securities and Exchange Board of India (Stock-brokers and Sub-brokers) Rules, 1992, a stock-broker
or sub-broker has to make an application in a prescribed form (Form 'A'
or Form 'B', as the case may be) to the SEBI through the stock exchange of
which he is a member. The application shall be forwarded to the SEBI by the
stock exchange, which shall issue the certificate of registration after
ensuring that all the prescribed conditions have been complied with under
Regulations 3 to 13 of the aforesaid regulations.
(3) Whether sub-brokers are covered by
the Service Tax?
The
department in its Trade Notice No. 3/94-ST, dated 19-10-1994,
Indore Commissionerate (appended as Annexure 1) has clarified that "at
present sub-brokers are not covered". In the Service Tax Audit Manual -
2003 issued by the Directorate General of Audit, Central Board of Excise and
Customs, New Delhi, in part III related to Service Specific Profiles, in point
6 'Exemption and Exclusion' on the Chapter 'Profile of Stock Brokers' services,
referring to Ministry's F. No. 148/l/94-CX. 4, dated 6-9-1994
has stated that "sub-brokers are not covered by service tax".
The
Securities and Exchange Board of India (SEBI), w.e.f. 23-9-2003 has
amended regulation 17 of SEBI (Stock Brokers and Sub-brokers)
Regulations, 1992 by SEBI (Stock Brokers and Sub-Brokers) (Amendment)
Regulations 2003 rule Notification S.C. No. 1095(E), dated 23rd September,
2003. As per the said amendment, every stock-broker shall keep and
maintain "an agreement with the sub-broker and with the client of the
sub-broker to establish privity of contract between the stock-broker
and the client of the sub-broker". Thus, after the aforesaid
amendment, every stock-broker is required to have agreement which would
establish privity of contract between stock-broker and the client (i.e.
investor) of the sub-broker. Therefore, now, even if investor is dealing
with the sub-broker, it is a contract between stock-broker and
investor, and contract note is required to be issued by the stock-broker
in the name of investor instead of sub-broker, therefore, brokerage/
commission from the investor will be charged by the stock-broker and
stock-broker may pay the commission or brokerage to the sub-broker
for the transactions done under the code of such sub-broker.
In spite
of aforesaid clarifications, it was reported that in many Commissionerates,
service tax was being asked from the sub broker, Even coercive measures were
taken to recover service tax from sub-broker though law did not provide
levy of service tax on sub-broker. Now, to bring sub-broker under
the service tax net, changes have been made by the Finance (No. 2) Act, 2004,
as discussed earlier in this Chapter, therefore, from the date of enactment of
the Finance (No. 2) Act, 2004, i.e. 10-9-2004, sub-broker is
covered under the service tax net. However, author is of the view that after
the aforesaid amendment made by the SEBI, there was no necessity to make any
change in the service tax law, to bring sub-broker under the service tax
net as now sub-broker cannot deal with the investor, and as per section 67, any
commission paid by stock broker to sub-broker was already covered under
the service tax net.
Stock-broker
services liable to be charged to tax
Stock-broker's
services are liable to be charged to service tax when provided to
- any person
- in connection with the sale or
purchase of securities
- which are listed on a recognized stock
exchange
(1) Meaning of 'person'
The term
'person' has not been defined in the context of service tax. But, the term 'person' has been
defined as "person shall include any company or association or hotly of
individuals, whether incorporated or not" [clause (42) of section 3 of
General Clauses Act, 1897].
Therefore,
even though, in general, person is understood as only natural person (i.e.
human being) but in the context of service tax, it includes natural, artificial
and juristic person also. Thus, partnership firm, company, corporation,
societies, government enterprises, Hindu undivided family (HUF) etc. will also
fall under the definition of person.
Therefore,
'person' may be artificial or juristic person or may be a natural person; when
services are provided to any such person, it will fall under the service tax
net.
(2) 'Sale or purchases of securities'
Stock-broker's
services are liable for service tax only when, it is in connection with sale or
purchase of listed securities. Therefore, initial offer and private placements
are not covered under the ambit of service tax.
(3) 'Securities'
"Securities
has the meaning assigned to it in clause (h) of section 2 of the Securities
Contracts (Regulation) Act, 1956" [clause (92) of section 65].
As
per clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956:
"securities"
includes -
(i) shares, scrips, stocks,
bonds, debentures, debenture stock or other marketable securities of a like
nature in or of any incorporated company or other body corporate;
(in)
derivative;
(ib) units or any other
instruments issued by any collective investment scheme to the investors in such
schemes;
(ii)
Government securities;
(iia) such other instruments
as may be declared by the Central
Government to be securities; and
(iii) rights or interests in securities."
(4) 'Listing of securities'
As per
section 73 of the Companies Act, 1956, every company, intending to offer shares
or debentures to the public for subscription, shall, make an application to one
or more recognized stock exchanges for permission for the shares or debentures
to be dealt with in the stock exchanges. Thus, it is mandatory for every public
limited company to get its shares/ debentures listed on the recognized stock
exchanges, so that it can be traded in such stock exchange.
(5) 'Conditions
for listing of securities'
As per
section 21 of Securities Contracts (Regulation) Act, 1956, "where
securities are listed on the application of any person in any recognized stock
exchange, such person shall comply with the conditions of the listing agreement
with that stock exchange".
(6) 'Recognized
stock exchange'
"Recognized
stock exchange has the meaning assigned to it in clause (f) of section 2 of the
Securities Contracts (Regulation) Act, 1956" [clause (89) of section 65].
As
per clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956
", recognized stock exchange' means a stock exchange which is for the time being recognized by the Central Government under section 4".
By
exercising the power conferred under section 4 of the Securities Contracts
(Regulation) Act, 1956, the Central Government has recognized the following
Stock Exchanges:
1.
Bombay Stock Exchange
2.
Delhi Stock Exchange Association Ltd.
3.
Madhya Pradesh Stock Exchange (Indore).
4.
Ahmedabad Stock Exchange
5.
Madras Stock Exchange
6.
Calcutta Stock Exchange
7.
Uttar Pradesh Stock Exchange Association Ltd.
8.
Pune Stock Exchange Ltd.
9.
Bangalore Stock Exchange Ltd.
10.
Ludhiana Stock Exchange Association Ltd.
11.
Hyderabad Stock Exchange Ltd.
12.
Gauhati Stock Exchange Ltd.
13. Cochin Stock Exchange Ltd.
14.
Mangalore Stock Exchange Ltd.
15.
Magadh Stock Exchange Association
16.
Bhubaneshwar Stock Exchange
17.
Saurashtra Kutch Stock Exchange
18.
Jaipur Stock Exchange
19.
Vadodara Stock Exchange
20.
Coimbatore Stock Exchange
21.
Meerut Stock Exchange
22.
Over the Counter Exchange of India (OTC)
23.
National Stock Exchange (NSC)
24.
The Inter-connected stock Exchange
25.
Capital Stock Exchange Kerala Ltd.
(7) Registration of Stock-brokers
registered with particular Stock Exchange
The
members of local stock exchange are required to carry on business compulsorily
within the jurisdiction of the said Stock Exchange where they are registered.
The Government has clarified that "a stock-broker registered with a
particular Stock Exchange has to apply for registration with Commissioner of
Central Excise having jurisdiction over the place in which concerned Stock
Exchange is situated, irrespective of whether all offices of stock broker are
situate within or outside the jurisdiction of the said Commissionerate vide
Trade Notice No. 13-CE (Misc-13)/97, dated 6-2-1997
(appended as Annexure III). Where "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" vide Trade Notice No. 14-CE (Misc-14)/97,
dated 6-2-1997, Delhi Commissionerate (appended as Annexure IV),
(8) Registration of Stock-brokers registered with National Stock Exchange (NSE)
National
Stock Exchange permits its members to operate from any part of India through
satellite network owned, operated and managed by National Stock Exchange. Very
Small Aperture Terminals (VSAT) are installed at trading members office. The
Board in its Circular No. 12/6/1996, dated 16-9-1996 has clarified,
"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 (VSAT) and operating the business" vide Trade Notice No. 13-CE
(Misc-13)/97, dated 6-2-1997, Delhi Commissionerate (appended
as Annexure III).
(9) Registration of Stock-brokers registered with Over the Counter Exchange of India (OTCEI)
The above
instructions for registration of Stock Brokers of NSC will apply mufatis
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 vide Trade Notice No. 14-CE (Misc-14)/97, dated 6-2-1997,
Delhi Commissionerate (appended as Annexure IV).
(10) Separate registration for member of OTCEI
and NSE
It has
also been clarified that, "even if the member/dealer has registered
himself as stock-broker of a conventional stock exchange for transaction
of securities of that stock exchange, he has to separately apply for
registration as member/dealer of OTCEI, National Stock Exchange, etc., for sale
or purchase of securities listed on such exchange" vide Trade Notice No.
14-CE (Misc-14)/97, dated 6-2-1997, Delhi
Commissionerate (appended as Annexure IV).
Value
of taxable services for charging tax
The value
of taxable service in relation to services provided by a stock broker shall be
the gross amount charged by the stock broker from any person in connection with
the sales or purchase of securities listed on a recognized stock exchange
[section 67]. For the removal of doubt, it is declared that the value of a
taxable service in relation to services provided by a stock broker includes
"tile aggregate of commission or brokerage charged by a broker oil the
sale or purchase of securities including the commission or brokerage paid by
the stock-broker to any sub-broker" [clause (a) to the Explanation 1
of section 67].
(1) Whether brokerage paid to sub-broker
is part of value of taxable service?
Yes, in
the Explanation to the definition of 'value of taxable services' under section
67, for the removal of doubt, it is hereby declared that the value of taxable
service includes 'the commission or brokerage paid by the stock-broker to
any sub-broker'.
(2) Whether delivery/demat charges are part
of value of taxable service?
No, the
service tax is chargeable on the brokerage or commission charged by the stock-broker
from any person an the sale and purchase of securities. Therefore, delivery
charges or demat charges are not the part of value of taxable service.
(3) Whether 'Badla Charge' is part of value
of taxable service?
No, the
facility of postponement of transaction till the next settlement period is technically
called 'carry over' or badla'. This facility is provided to the investor to
postpone the payment to or delivery of securities, if the market conditions
turn adverse. The charges for such facility are called 'badla charges'. The
service tax is chargeable on the brokerage or commission on the sale and
Purchase of securities, 'badia charges' are not commission or brokerage for
sale or purchase of securities, therefore not part of value of taxable service.
(4) Whether tax is to be charged on notional
amount?
No, if the
stock-broker does not charge any commission or brokerage for any
transaction, in that case no service tax could be levied on the notional amount
of commission or brokerage. The service tax shall be levied only on the amount
that has been charged as brokerage by the stock-broker for the sale or
purchase of the securities [Chandravandan Desai v Commissioner of Central
Excise (1998) (98) ELT 515 (Tribunal-Cal)].
(5) Whether service tax is to be charged
twice, when taxable services are provided by two stock-brokers of
different stock exchanges
Yes, it is
possible that investor may contract for the sale or purchase of securities in
respect of same transaction, the services being provided by two stock brokers
of different stock exchanges. For instance - Mr. 'A' a Calcutta based
investor buys a security quoted on the Bombay stock exchange through his broker
at Calcutta, in such case, Mr. 'A' will place an order to his broker at
Calcutta, he in turn will place an order to his counterpart at Bombay. In this
case, brokerage charged by the broker of Calcutta and Bombay Stock Exchanges
shall be the value of taxable services. The department in its Trade Notice No,
63/96, dated June 1996, Pane Commissionerate (appended as Annexure V) has
clarified, "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". The author is of the view that now, service tax credit
can be claimed in such case - for detail refer to the Chapter on 'Credit
of Service Tax Paid'.
(6) Whether service tax is to be charged, when two stock-brokers of same stock exchange deal with each other?
The
Finance (No. 2) Act, 2004 has made change in the definition of taxable service
and substituted the Word "to any person" in place of "to an
investor". Therefore, now service tax shall also be chargeable when
service is rendered by one stock broker to another stock broker of same stock
exchange, however in such case, service tax credit can be claimed.
Exempted
Stock Broker's Service
(A) Exemption for the amount received prior to
10-9-2004
The Government, w.e.f. 10-9-2004 has exempted from whole to service tax the portion of the taxable value, in respect of the services provided to any person, by a sub-broker in connection with the sale and purchase of securities listed on a recoginsed stock exchange, which is received by the service provider prior to 10th day of September 2004 [vide Notification No. 25/2004-ST, dated 109-2004 appended as Annexure VII. As mentioned earlier in this Chapter, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has made change in the definition of stock broker to include 'sub-brokers', therefore, to avoid any confusion such exemption has been given. Thus, now, the service provided by a sub-broker to his stock broker will also become taxable. It may be noted that the Government in its Circular No. 65/14/2003, dated 5th November, 2003 (appended as Annexure VII in the Chapter -'Payment of Service Tax') had clarified that ,,where the value of taxable service has been received in advance for a service which became taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month1quarter which may be worked out on pro rata basis". Further, w.e.f. 9-7-2004 the Service Tax Rules, 1994 have been amended vide Notification No. 5/2004-ST, dated 9-7-2004. As per the aforesaid amendment, where the value of taxable service is received before providing the taxable service, the service tax shall be paid on the value of service attributable to the relevant month, or quarter, as the case may be. In other words, where payment is received in advance, service tax will be payable on pro rata basis. Therefore, if the above exemption Notification would not have been issued then a service provider would be held liable to pay service tax on the portion of amount so received in advance before the imposition of levy of service tax which related to the portion of taxable services rendered on or after the date of imposition of service tax.
(B) General Exemptions
The
Government has granted exemption from the whole of Service Tax in respect of
all taxable services, for services provided to United Nations or an
International Organisation. Similarly, the exemption, subject to certain
conditions, has also been granted for taxable service provided to a developer
or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November,
2003 has restored the exemption, as an interim measure, from the whole of service
tax when payment is received in convertible foreign exchange for the taxable
services rendered in India provided it was not repatriated from or sent outside
India, such exemption was earlier withdrawn w.e.f. 1-3-2003. The
reader may note that detailed discussion about aforesaid exemptions along with
relevant notifications have been given in the Chapter on 'Exemption from whole
of Service Tax - Some Cases'.
N.B. The
readers may note that provisions, procedures and other related discussion
related to registration, payments of service tax, filing of return, interest
and penalty, assessment procedure, appeal, refund of tax, etc., which are same,
as applicable in respect of other taxable services, have been given in separate
Chapters of this Book.
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
Central Excise, Kanpur.
Whether
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. Stockbroker
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
stockbroker in accordance with the rules and regulations made under the
Securities and 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 and Arbitrage -
Transaction
amounting to taxable service subject to service tax
[C.B.E. &
C., Service Tax Circular No. 20/14/96 dated 31-12-1996]
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) Arbitrage -
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 the Finance Act, 1994, taxable service means any service
provided to an investor 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 a 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 a
stock exchange, the service provided will be taxable service and subject to
service tax.
(C) In case of arbitrage
transactions i.e. transactions 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.
Additional Clarification
Transaction amounting to Taxable Service subject to
Service Tax - Regarding
As per the
clarification contained in Board's Service Circular No. 20/14/96, dated 31-12-1996,
only when the transaction is between the broker who functions as a principal
with a non-member of the Stock Exchange, that service would be a taxable
service. In other words, when the broker on his own account sells the security
to non-member or purchases the security from a non-member, he
functions as a constituent in the said transaction and the service provided to
him will be a taxable service.
If the
broker enters into a transaction on his own account as a constituent on the
floor of the stock exchange of which he is a member with another member the
transaction would be same as "jobbing" and therefore not liable to
service tax.
No
modification is necessary in the Circular mentioned, supra.
[Trade
Notice No. 13-CE (Misc-13)/97, dated 6-2-1997, issued
by the Delhi Commissionerate]
The trade
is hereby informed that according 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 has been
examined by the Board. National Stock Exchange permits its members to operate
from any part of India through satellite network owned, operated and managed by
National Stock Exchange using Very Small Aperture Terminals (VSAT) installed at
trading members office where as the member of local stock exchange is required
to carry on business compulsorily within the jurisdiction of the said Stock
Exchange wherein 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.
Authority:
Service Tax Circular No. 12/6/96, [F. No. 148/5/96-CX.4], dated 16-9-1996.
Registration of Members/Dealers of Over
the Counter Exchange of India (OTCEI)
[Trade
Notice No. 14-CE (Misc-14)/97, dated 6-2-1997, issued
by the Delhi Commissionerate]
The Trade
is hereby informed that according to Trade Notice No. 13-CE (Misc-13)/97,
dated 6-2-1997 where the Board has clarified that trading
Members/Stock Brokers of the National Stock Exchange will have to register
their premises with the Central Excise Commissionerate having the jurisdiction
over the place from where trading Member operate their business.
2. It is hereby clarified
that 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 will require to be registered 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 will be required to be registered with Central Excise Commissionerate
having jurisdiction over the place of operation of their business. It is
further clarified 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 of OTCEI, National Stock Exchange, etc. for sale or purchase of
securities listed on such Exchange.
Authority:
Service Tax Circular No. 18/12/96 [F.No. 148/2/96-CX-4], dated 4-11-1996.
Buying/Selling of securities by a
Member of one stock exchange through a member of another stock exchange on
behalf of an investor - Regarding
[Trade
Notice No. 63/96, dated June, 1996, issued by the Pune Commissionerate]
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 exchange '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 and 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 and 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
Commission/ brokerage is charged at both the ends, the charge of service tax at
both the ends is both conceptually and 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 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, therefore, be
said that the investor is paying service tax twice. The investor in fact, pays
double commission for avoiding the hassles involved in going to the Bombay
stock exchange broker direct.
The
service tax being the percentage of the brokerage charged from the investor
there is no double taxation involved. Service tax charged is only incidental to
the charging of the commission/ brokerage 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.
Exemption of value of taxable services
provided prior to 10-9-2004 in respect of services newly
extended/widened by the Finance (No. 2) Act, 2004
In exercise
of the powers conferred by sub-section (1) of section 93 of the Finance
Act, 1994 (32 of 1994), the Central Government, being satisfied that it is
necessary in the public interest so to do, hereby exempts that portion of the
value of following taxable services, namely
(a) services provided to a customer, by a
commissioning and installation agency in relation to erection;
(b) services provided to any person, by a
sub-broker in connection with the sale and purchase of securities listed
on a recoginsed stock exchange;
(c) services provided to any person by a multisystern operator in
relation to cable services;
(d) services provided to a client by a
commercial concern in relation to the following business auxiliary services
namely, -
(i)
procurement of goods or services,
which are inputs for the client;
(ii)
production of goods on behalf of
the client;
(iii) provision of service on behalf of the
client; or
(iv) a service incidental or auxiliary to any
activity specified in (i) to (iii) above;
(e) services provided to a
customer by any body corporate or commercial concern, other than a banking
company or a financial institution including a non-banking financial
company, in relation to banking and other financial services;
(f) services provided to a
customer by a banking company or a financial institution including a non-banking
financial company in relation to financial services namely lending; issue of
pay order, demand draft, cheque, letter of credit and bill of exchange;
providing bank guarantee, over draft facility, bill discounting facility, safe
deposit locker, safe vaults; operation of bank accounts;
(g) services provided to any person by a
tour operator, other than a tour operator engaged in the business of operating
tours in a tourist vehicle covered by a permit granted under the Motor Vehicles
Act, 1988 or rules made thereunder, in relation to a tour; and
(h) service provided to a
policy holder, by an insurer carrying on life insurance business in relation to
the risk cover in life insurance,
from the
whole of service tax leviable thereon under section 66 of the said Act, which
is received by the service provider prior to the 10th day of September, 2004.