VPN was not made by the appellant by way of a support service for the sub-brokers. Evidently, there is no service provider – service receiver relationship between the appellant and the sub-brokers. A part of the cost involved in the VPN has been recovered from sub-brokers as their share of the expenditure. It appears to us that this is a cost-sharing arrangement and not in the form of a service provider-service receiver relationship. Consequently, we are of the view that there is no justification for levy of Service tax under the category of ‘Business Support Services”. Further, after going through the relevant definition appearing in Section 65(104c) of the Finance Act, 1994 we find that the activity is not covered by any of the services listed therein. Consequently, we set aside the demand for Service Tax under this category.
As discussed earlier, the appellant set up a VPN for connecting the sub-brokers with itself and also for maintaining the connection with the Stock Exchanges. The Service Tax paid on the VPN rent was availed as cenvat credit on input service. The Department sought to deny such cenvat credit by taking the view that the service is not directly in relation to the output service i.e. Stock Broking Service. We find considerable force in the stand taken by the appellant. 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.
FULL TEXT OF THE CESTAT JUDGMENT
The present appal is filed against the of Order-in-Original No. DEL-SVTAX-ADJ-COM-48-53-13-14 dated 31.03.2014 passed by the Commissioner of Service Tax (Adj.), New Delhi. The period of dispute is from 01.04.2007 to 31.03.2012.
2. Vide the impugned order, the Commissioner has adjudicated the demand raised in six show cause notices issued by various parties. The total service tax demand upheld vide the impugned order is Rs. 4,05,97,745/- alongwith interest and penalties. The following table indicates the demand of service tax made under the different services.
|Sl. No.||Particulars||Amount Rs.|
|1||Storage & Warehouse Services||5,44,074/-|
|2||Renting of Immovable Property||1,17,449/-|
|3||Stock Broker Services – Transaction charges||6,24,304/-|
|4||Account opening charges, ID charges, reimbursements, SEBI charges, penalty, interest.||46,01,091/-|
|5||Business Support Services||11,77,050/-|
|7||On-line Information and Data Base Access or retrieval – Demand on consideration received from clients.||62,04,393/-|
|8||Demand on reimbursements claimed from NSDL||8,18,756/-|
|9||Registrar to an issue , Share Transfer Agents – Demand on reimbursement of expenses
(A) Demand confirmed under BAS for the period 10.09.2004 to 30.04.2006
(B) Demand confirmed under RTA for the period 01.05.2005 to 31.03.2008.
|10||Banking & other Financial Services –
Demand on charges collected from the
|11||Demand on NSR (National Skill Registry)||21,90,061/-|
|12||Demand on reimbursement of expenses viz postage, stationery.||49,11,209/-|
|13||Denial of CENVAT credit on VPN||38,82,637/-|
|14||Denial of CENVAT credit on warehouse rent||12,93,501/-|
|15||Denial of CENVAT credit on digitization charges||12,05,616/-|
3. The appellant 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.
4. Heard both sides and perused appeal record. We discuss the demands under various sub-heads and decide them one by one.
5.1 Service Tax has been ordered to be paid under the category of “Stock Broker Services” on the transaction charges received by the appellant from their customers, alongwith brokerage. It is the claim of the appellant that such charges were collected and subsequently remitted to the stock exchange concerned. Accordingly, it is claimed that the same cannot be included in the brokerage charges and charged to Service Tax under this category. It is further submitted that such transaction charges were liable to payment of Service Tax under the stock exchange services w.e.f. 16.05.2008.
5.2. Demand for Service Tax has also been raised on account opening charges, LD charges, SEBI charges etc. which were also recovered by the appellant from the customers. Ld. C.A. submitted that the issue is decided in favour of the appellant vide LSE Securities Limited -2013 (29) STR 591 (Tri. Del.). Such charges have also been held to be not liable for service tax under the category of stock broker services.
5.3. After hearing the ld. AR for the Revenue and on perusal of the decision of the Tribunal in the case of LSE Securities (supra) we find that the Tribunal has observed as follows:
“16. The appellants in these appeals received “turnover charges”, stamp duty, BSE charges, SEBI fees and DEMAT charges contending that the same was payable to different authorities and claimed that the same is not taxable. But Revenue taxed the same on the ground that such receipt by stock broker was liable to tax. Revenue failed to bring out whether the turnover charges and other charges in dispute in these appeals received by appellant were commission or brokerage. The character of receipts was claimed by appellants as recoveries from investors to make payment thereof to respective authorities in accordance with statutory provisions of Indian Stamp Act and SEBI guidelines and were not received towards consideration in the nature of commission or brokerage of sale or purchase of securities. While burden of proof was on Revenue to establish that such receipts were in the nature of commission or brokerage or had the characteristic of such nature that was failed to be discharged. The character of commission or brokerage is remuneration for the service of stock broking provided by a stock broker to investors. Therefore, aforesaid charges realised by appellants were not being of commission or brokerage are not taxable and shall not form part of gross value of taxable service. On merit, all the appellants succeed on the fundamental principles of taxation. Therefore, other contentions on merit made in respective appeals are not considered in this order”.
By following the decision of LSE Securities (supra), we set aside the demand for Service Tax on the above two components of demand.
6.1 The appellant, being a stock broker had appointed several sub-brokers. To provide the facilities for interconnection of the sub-brokers with the appellant and inturn access the stock exchanges, the appellant made arrangements for a Virtual Private Network (VPN). A part of the cost incurred for VPN by the appellant was recovered from the sub –brokers. Revenue has confirmed the demand for Service tax on charges recovered under the category of “Business Support Services”, by taking the view that the appellant has provided support services for business of the sub-broker.
6.2 The contention of the appellant is that the cost of providing the VPN was shared with the sub-brokers. This was nothing but a cost sharing arrangement and not by way of Support Services of Business or Commerce. The appellant relied the case of Gujarat State Fertilizers and Chemicals – 2016 (12) TMI 103 (SC).
6.3 The ld. AR justified the levy. He argued that the appellant has arranged for VPN which is in the nature of operational assistance and infrastructural support service. He further submitted that the case of GSFC (supra) will not apply to the present case since in the said case the Hon’ble Supreme Court was considering a joint venture arrangement between the two Public Sector Undertakings.
6.4 After hearing both sides, we note that the appellant has set up a VPN, and such network was utilised not only by the appellant but also their sub-brokers to access the various stock exchanges for putting through their transaction in securities. It is to be noted that the arrangement for the VPN was not made by the appellant by way of a support service for the sub-brokers. Evidently there is no service provider – service receiver relationship between the appellant and the sub-brokers. A part of the cost involved in the VPN has been recovered from sub-brokers as their share of the expenditure. It appears to us that this is a cost sharing arrangement and not in the form of a service provider-service receiver relationship. Consequently, we are of the view that there is no justification for levy of Service tax under the category of ‘Business Support Services”. Further, after going through the relevant definition appearing in Section 65(104c) of the Finance Act, 1994 we find that the activity is not covered by any of the services listed therein. Consequently, we set aside the demand for Service Tax under this category.
7.1 Demands for Service Tax have been raised under the category of ‘Management, Maintenance and Repair Service’ for the consideration received by the appellant for providing computer software Consultancy Services to their customers. It is the claim of the appellant that such service rendered was for development and maintenance of software for companies. The appellant started discharging Service Tax liability on such consideration, w.e.f. 16.05.2008 under the category of ‘Information Technology Services’. The adjudicating authority has taken the view that w.e.f. 01.06.2007, computer software has been declared as “goods” under the definition of ‘Management, Maintenance and Repair Service’ (MMRS) service and hence service tax is payable under the said category.
7.2 We have perused the relevant definition prevailing at the relevant time. The service of MMRS basically deals with the maintenance of immovable property. The definition has been amended to include goods also w.e.f. 01.06.2007. But w.e.f. 16.05.2008 a separate category of service has been defined under ‘Information Technology Software Service’. It is seen that the nature of activity carried out involves development and maintenance of software. These activities are covered only by the definition of Information Technology Software Service and cannot be brought within the definition of MMRS for the period prior to 16.05.2008. It cannot be said that such activity related to software is includible under MMRS for the prior period. Similar views have been expressed by the Tribunal in the case of SAP India … 2-11 (21) STR 303 (Tri. Bang.).
“5.5 Going by the explanation (supra), we find from the above text of Section 65(64) that maintenance or repair of Information technology software is specifically covered under sub-clause (b) whereas maintenance or repair of computer software is specifically covered under sub-clause (c). It is obvious that the legislature has understood information technology software to be distinct and different from computer software. The Circulars and decisions cited before us, all, discuss computer software. No material has been placed before us, other than the literature supplied by the learned Special Consultant for the Revenue, to show that activities of the kind undertaken by the appellant during the material period would be encompassed in the ERP regime. To our mind, these are activities very much within the coverage of sub-clause (zzzze)(iii) of clause 105 of Section 65 of the Finance Act, 1994. Any incidental advice, consultancy or assistance given by the service provider will be squarely covered by sub-clause (zzzze)(iv). It is pertinent to note that adaptation, upgradation, enhancement, implementation, etc. of information technology software are expressly covered by the definition of ‘information technology software’ service and that these very operations have also been specified as different categories on software maintenance in the literature supplied to us. Thus there is almost total convergence between the technical literature on software and the definition of information technology software service given under Section 65(105)(zzzze) of the Finance Act, 1994”.
7.3 By following the said decision, we set aside the demand under this category.
8.1 Service Tax demand has been raised under the category of ‘Online Information and Data Base Access or Retrieval Service’. There are two parts to such demand.
8.2. The first point covers the appellant’s agreement with M/s National Security Depository Limited (NSDL), for setting up and renting a Facilitation Centre on behalf of the Income Tax Department. The consideration received by the appellant from the clients (which included Service Tax) was entirely remitted to NSDL. NSDL in turn has discharged the Service tax in full. It is submitted by the appellant that since the Service tax on the entire activity has already been discharged by NSDL, the same cannot be demanded from the appellant once again. In this connection, the certificate dated 16.06.2008 issued by NSDL was referred to. Further, it is submitted that an identical issue has been decided by the Tribunal in favour of the appellant in the case of S. V. Engineering Constructions vs. CC, CE&ST, Guntur-2016 (11) TMI 108 (CESTAT Hyderabad).
8.3. Ld. AR for the Revenue justified the impugned order. He submitted that for the activities carried out, the appellant was liable to pay Service Tax. Any Service Tax paid by the appellant can be availed as cenvat credit on input service by the main contractor i.e. NSDL. Hence, he submitted that the appellant cannot be exempted from payment of Service Tax only for the reason that main contractor has already remitted the Service Tax.
After hearing both sides and on perusal of record, we find that the issue involved in the present case has been decided by the Tribunal in favour of the appellant in the case of S. V. Engineering Constructions (supra). The Tribunal in the above case observed as follows:
“V) The total value of work executed by the Appellant for Dorli Open Cast Project-1 is Rs. 103,25,25,166/-. The main contractor BGR has already discharged the service tax amount of Rs.10,64,27,457/- on the gross value received by them from SCCL which includes the amount received by the Appellant. The main contractor has therefore, discharged service tax amount on the total value of the project which includes the value of the work awarded to the Appellant. The main contractor (BGR) has also further certified that they have discharged full amount of service tax on value of work awarded to the sub-contractor.
i. Visesh Engineering Co. Vs. Commr of Cus. Ex. & ST, Guntur [2016 (43) STR 232 )Tri. Hyd)]
ii. Nana Lal Suthar vs. CCE, Jaipur-I [2015-TIOL-2357-CESTAT-DEL)].
iii. Oikos vs. CCE, Bangalore-III [2007 (5) STR 229 (Tri. Bang.)]
iv. CCE, Raipur vs. Jethson Builders Pvt. Ltd. [2011-TIOL-1613-CESTAT-DEL)].
v. Final Order dated 07.10.2013 passed by CESTAT, Ahmedabad in Appeal No. ST/1189/2013 in the case of M/s Mahalaxmi Infracontract Limited.
vi. Urvi Construction vs. Commr. of Service tax, Ahmedabad [2010 (17) STR 302 (Tri. Ahmd)]
vii. CCE, Pune-III vs. Akruti Projects [2014-TIOL-1925-CESTAT-Mum)]
viii. DNS Contractor vs. CCE, Delhi-I [2015 (37) STR 849 (Tri. Del.)
ix. Jac Air Services Pvt. Ltd. vs. Commr. of Service Tax, Delhi [ 2013 (31) STR 155 (Tri. Del)]
Following the principle laid in the above decisions, we hold that the impugned order is not sustainable, and requires to be set aside, which we hereby do.
4. In the result, the appeal is allowed with consequential reliefs, if any.”
8.4. By following the above decision, we set aside the service tax demand.
8.5 The second part of the dispute is regarding reimbursement claimed by the appellant from NSDL. It is the view of the Revenue that the charges reimbursed by NSDL should also be included for payment of Service Tax under the category of “On-line Information and ‘Data Base Access or Retrieval service’. We have held (supra) that since NSDL has discharged the Service Tax, the appellant cannot be called upon to pay Service Tax once again. This is also applicable for the reimbursement. Further, it s seen that the issue regarding Service Tax liability on the reimbursement has also been settled by the Hon’ble Supreme Court in favour of the appellant in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. – 2018 (3) TMI 357 (SC). In view of the above, we find no justification for the levy of Service Tax on the reimbursement which is set aside.
9.1 The appellant acted as Registrar to an issue as well as Share Transfer Agent. These activities were liable to Service Tax under the category of Registrar and Share Transfer Agents Service w.e.f. 01.05.2006. The appellant, in addition to the commission, also received reimbursement of expenses such as postage, stationary etc. incurred for sending information to share holders. Such amounts were reimbursed to them without markup. The Department was of the view that Service Tax is required to be paid on such reimbursement of expenses. Demands were raised under the category of ‘Business Auxiliary Service’ (BAS) for the period 10.09.2004 to 30.04.2006 and under the category of RTA for the subsequent period from 01.05.2006 to 31.03.2008.
9.2 It is seen from record that such amounts were reimbursed to the appellant on actuals. The appellant has raised separate invoices without markup for reimbursement of such expenses. In view of the above, we find no justification to levy Service Tax on such amounts, particularly in view of the decision of the Hon’ble Supreme Court in the case of Intercontinental Consultants and Technocrats (supra). In the result, Service Tax demand on this ground is set aside.
10.1 The appellant functioned as a depository participant of NSDL. In addition, to the fees received from the investors, they also collected certain charges towards DEMAT charges, slip rejection charges etc. Such amounts were paid to NSDL at actuals. The Revenue raised demand for Service tax on such amounts for the period 01.04.2004 to 30.09.2009 under the category of ‘Banking and Other Financial Services’. Such levy of Service Tax is resisted by the appellant and they have cited the decision of the Tribunal in the case of Indes Securities and Finance Ltd. and Others vs. CST-ST, Ahmedabad dt. 29.09.2017 – 2018 (2) TMI 569 (CESTAT Ahd.).
10.2. After going through the said decision, we find that the case has discussed an identical issue. By following the decision of the Tribunal in the case of LSE Securities Ltd. vs. CCE, Ludhiana -2013 (29) STR 591 (Tri. Del.), the Tribunal came to the conclusion that Service Tax cannot be charged on such amounts under the category of ‘Banking and Financial Services’, since such charges are collected by the appellant and paid to the depository participants who are authorised to levy such charges under the Depository Act, 1996. By following the above decision (supra), we set aside the demand for Service Tax on this ground.
11.1 The appellant acted as an agent of NSDL and recovered charges from the clients in connection with National Skill Registry. They also recovered courier charges, movement charges, delayed payment charges, bank charges etc. Such charges were remitted to NSDL and NSDL have already discharged Service Tax thereon. The Department levied Service Tax on such amounts under the category of BAS.
11.2 The appellant has resisted such levy of Service Tax by taking the support of case law in the case of S.V. Engineering Constructions (supra).
11.3 We have already held above that various charges received by the appellant, which was inturn remitted to NSDL, on which they have already discharged Service Tax cannot be levied to Service Tax in the hands of the appellant. We find no reason to take a different stand in respect of the amount pertaining to National Skill Registry.
11.4 By following the decision in the case of S. V. Engineering Constructions (supra), we set aside the demand for Service Tax on this ground. We also set aside the demand raised under the same heading for reimbursement of expenses such as postage, stationary etc. incurred for sending the information to share holders.
12. As discussed earlier, the appellant set up a VPN for connecting the sub-brokers with itself and also for maintaining the connection with the Stock Exchanges. The Service Tax paid on the VPN rent was availed as cenvat credit on input service. The Department sought to deny such cenvat credit by taking the view that the service is not directly in relation to the output service i.e. Stock Broking Service. We find considerable force in the stand taken by the appellant. 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.
13.1 The Revenue has sought to deny the cenvat credit availed on warehouse rent as well as digitization charges. The credit of Service Tax on warehouse rent has been disallowed for the reason that the appellant had failed to pay Service Tax on storage and warehousing services for the disputed period. In the present appeal, the Service Tax liability on storage and warehousing services has been admitted and deposited by the appellant. Consequently, there is no reason to deny the cenvat credit on warehouse rent.
13.2 The denial of cenvat credit on digitization charges have been made by Revenue for failure to pay the Service Tax on digitization income. Since the Service Tax on the said income has already been paid by the appellant, the cenvat credit, which is denied only for the reason for non payment of output service tax, cannot be upheld.
14. The appellant has also raised various other arguments including that of limitation and further that several overlapping show cause notices have been issued in which the longer period of limitation has been invoked. We do not propose to give detailed findings on these arguments since the appeal has been allowed on merit.
15. In view of the above discussions, the impugned order is set aside and appeal is allowed.
(Pronounced on 18.07.2018).