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2016 (4) TMI 599 - CESTAT MUMBAI

2016 (4) TMI 599 - CESTAT MUMBAI - 2016 (43) S.T.R. 198 (Tri. - Mumbai) - Demand of Service tax - Banking and other financial services - Revenue stated respondent to be a broker who had filed some applications on behalf of intending purchasers of bonds, designated as 6.5% Savings Bond, issued by the Reserve Bank of India and have received a brokerage for the bonds that were issued against these applications. - Held that:- the subscriber to the bond issue is, quite possibly, a regular custome .....

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and the payment it makes cannot be considered to be brokerage. Reserve Bank of India undertakes the management of the issue as an agency function for the Central Government in exercise of a statutory responsibility. Clearly, there is no brokering of securities in the disputed transaction. The fee paid to 'receiving offices' and 'brokers' for their role in the bond issue is not 'brokerage' but commission. The foundation for confirmation of the demand in the impugned order is seen to totter. - .....

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ation is designated as 'brokerage' and because the recipient of that 'brokerage' is a 'body corporate' is not sustainable in the light of intent to tax the activity of 'banking and other financial services' without a clear finding that the bond is a tradeable security and that the recompense flows to M/s JM Financial Services Pvt. Ltd from a buyer or seller under a 'brokering' contract. The impugned order fails that test of coverage under section 65(105) of Finance Act as a 'taxable service.' - .....

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ich has determined tax liability of ₹ 76,02,092/-, along with interest thereon, as provider of 'banking and other financial services' for the period from August 2002 to March 2006. The adjudicating authority, however, did not impose penalties under section 76, 77 and 78 of the Finance Act, 1994. 2. While assessing the tax liability against the demand of ₹ 82,32,427/- in the show cause notice, the original authority has extended the benefit of 'cum-tax' valuation besid .....

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ould not have been extended. M/s JM Financial Services Pvt. Ltd. stated to be a broker, had filed some applications on behalf of intending purchasers of bonds, designated as 6.5% Savings Bond, issued by the Reserve Bank of India and are stated to have received a brokerage for the bonds that were issued against these applications. In the adjudication order, it was held that these bonds are 'government securities' within the meaning of section 2(h)(ii) of the Securities Contract (Regulatio .....

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receiving offices' of the Reserve Bank of India, designated branches of State Bank of India, their associated banks and other nationalized banks or any other banks or branches as specified by the Reserve Bank of India. The bonds issued would be evidenced by a stock certificate or could be held in the subscriber's name in the Bond Ledger Accounts maintained with the Public Debt office of the Reserve Bank of India or the branches concerned. The holder of the bonds in the Bond Ledger Accoun .....

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y Stock Exchange and the National Stock Exchange, claims that its role is limited to distributing the prescribed application forms to its clients and receiving such complete forms for onward transmission to the said 'receiving offices'. 5. The claim of M/s JM Financial Services Pvt Ltd is that 'savings bonds' are not government securities because these are issued and held in dematerialized form with the Public Debt Office of the Reserve Bank of India. It is also contended that th .....

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ider of the such taxable service to include 'body corporate' or 'commercial concern' was effected in section 65 (105)(zm), concurrent with the deletion of clause (zp), only on 10 th September, 2004. The appellant has also contested the non-consideration of its claim of bar of limitation as well as the manner in which the appropriation was effected by the original authority despite holding a part of the demand to be barred by limitation. 6. Learned Counsel relies on the decision o .....

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lved on the Reserve Bank of India, was not taxable. The decision of the Tribunal in Commissioner of Service Tax v. ICICI Bank Ltd - 2015-TIOL-1983-CESTAT-MUM was cited in support of their claim that the bonds issued by the Reserve Bank of India do not fall within the ambit of 'banking and other financial services'. 7. Learned Authorised Representative cited the decision of this Tribunal in Commissioner of Service Tax, Chandigarh - II v State Bank of Patiala [2015 (37) STR 1062 (Tri-Del)] .....

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9; in the bond issue documents and has been influenced by its status a 'body corporate' to confirm liability to tax as provider of 'banking and other financial services.' 9. According to section 65 (14) of Finance Act, 1994 "body corporate" has the meaning assigned to it in clause (7) of section 2 of the Companies Act, 1956 (1 of 1956); 10. It is not in dispute that M/s JM Financial Services Pvt Ltd is a 'body corporate', that it is a registered broker with the .....

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ntal as the conduit for collection and deposit of tax. This has been clearly articulated by the Hon'ble High Court of Gauhati in Magus Construction (P) Ltd v Union of India [2008 (11) STR 225 (Gau)] and reiterated in a number of judgements thereafter. The Hon'ble High Court of Gujarat Sports Club of Gujarat Ltd v Union of India [2010 (20) STR 17 (Guj)] has observed that- '9. …… Service Tax was introduced in India vide the Finance Act, 1994. It is legislated by the Parli .....

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tion 65 (105) 9zp) of Finance Act, 1994 till 10 th September 2004 and in section 65(105) (zm) for the rest of the financial year and for fiscal 2005. 12. The taxable service is: (105) "taxable service" means any service provided or to be provided, - xxxx (zm) to any person, by a banking company or a financial institution including a non banking financial company or any other body corporate or commercial concern, in relation to banking and other financial services; (zp) to a customer, b .....

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of foreign currency, including money changing; 13. We take note that section 65 (105)(zp) of Finance Act, 1994 for taxing of 'banking and other financial services' provided by 'body corporates' has been deleted with effect from 10 th September 2004 and incorporated within section 65 (105)(zm). The tax would be leviable, in the context of the present dispute, if M/s JM Financial Services Pvt Ltd was a broker dealing in the savings bonds and received brokerage as the fee thereon. 1 .....

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of the savings bond issue that these are not tradeable. The bonds are subscribed to by individuals and the Reserve Bank of India manages the issue on behalf of the Central Government. 15. The Reserve Bank of India is not the seller of the savings bond as the bonds do not belong to it. The subscriber to the bond issue is, quite possibly, a regular customer of M/s JM Financial Services Pvt Ltd as a broker of securities. Such a relationship or equation does not, for that reason alone, attract tax b .....

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