By TIOL News Service

MUMBAI, APRIL 23, 2018: THE Appellant is a stock broking company and provides its customers access to trade in equity derivatives, mutual funds and IPOs. The customer desirous to do trading has to register with the Appellant's affiliate M/s Reliance Money Infrastructure Limited (RMIL) who provides the state of art online trading platform vide its web portal to trade in securities. For the purpose of trading, the investor is provided with pre-paid cards also known as limit cards of various denominations and the fee charged for such cards from the investor is income to the Appellant and M/s RMIL.

By virtue of an agreement, M/s RMIL was entrusted with the sole responsibility of collection of card fee including service tax for such consolidated service to the customer. It was agreed between the Appellant and M/s RMIL that 95% of the total card fee either initially or on renewal either on volume basis or time basis whether accrued, collected or debited to the customers will be disbursed to the Appellant by M/s RMIL and the remaining 5% would be retained by M/s RMIL for services rendered to the customer.

A SCN was issued to the appellant on the ground that they were providing “Business Support Service” to M/s RMIL and, therefore, service tax was payable by them.

The demand was confirmed and hence this appeal before the CESTAT.

Exhaustive submissions were made by both sides.

While the appellant contended that the impugned order seeks to levy service tax on the same transaction twice; has traveled beyond the SCN and the entire exercise is a revenue neutral one, the AR while supporting the order also emphasized that the SCN was issued within one year of the facts having come to the knowledge of the department.

After considering the submissions, the Bench observed thus –

On Merits:

+ The client has to register themselves with RMIL for the services offered by RMIL and for such services, fee is paid to M/s RMIL by the client. In turn, M/s RMIL has entered into agreement with Appellant under which for providing stock broking and related service activity, the Appellant is getting share of fee charged by M/s RMIL from its customer as apparent from the agreement between the both.

+ The agreement clause 6 specifically recognizes the clients as of M/s RMIL to which the services are provided by the Appellant. The sharing of fee cannot be interpreted as rendering of services by Appellant to the clients of M/s RMIL. In sharing of such fee, M/s RMIL is effectively discharging service tax on full amount of card fee.

+ M/s RMIL has retained only 5% amount as its share and the remaining 95% has been forwarded to the Appellant. This clearly shows that M/s RMIL has acted as agent of Appellant for financial services. The discharge of service tax liability has been made by M/s RMIL as it has collected fee as agent of the Appellant and paid applicable service tax before remitting the 95% amount to the Appellant. The amount thus shared in between the Appellant and M/s RMIL cannot be taxed as it has already suffered taxes at the time of receipt by M/s RMIL. In such facts no service tax demand can be made against Appellant.

+ On the one hand the show cause notice has demanded tax under the category of “Business Support Service” on the ground that the Appellant made available its infrastructure namely its internet based trading platform to clients of M/s RMIL and on the other hand the impugned order confirmed the demand on the ground that Appellant is providing stock broking service to investor. This amounts to confirmation of demand beyond the scope of show cause notice which is not permissible under law.

+ Also it is to be seen that the amount of 95% has been received by the Appellant from M/s RMIL and not from the clients. M/s RMIL has already discharged tax on the said amount. The Appellant is not providing any service to the RMIL. RMIL collects card fees from the investors and discharges service tax on the total card fees collected. It retains only a part and transfers the balance to the Appellant. Thus in respect of receipt by the Appellant there is only one transaction i.e. the services provided by the Appellant to the investor and service tax has been discharged by RMIL on behalf of Appellant. Once the service tax on entire value has been discharged there cannot be double taxation. The demand of service tax from the Appellant would be double taxation on same amount which itself is erroneous. Hence the demand is not sustainable.

Limitation:

++ The discharge of service tax on entire card fee by M/s RMIL clearly shows that the Appellant had bonafide belief that M/s RMIL is only liable to tax. …no element of fraud, suppression or intention to evade service tax has been brought on record. …extended period of limitation is also not invokable and no penalty is payable.

Revenue neutrality:

++ Assuming contentions of revenue regarding levy of service tax is accepted, the whole of the service tax paid by RMIL shall be available to the Appellant as Cenvat Credit which will result into revenue neutrality. On this count also demand does not sustain.

The impugned order was set aside and the appeal was allowed with consequential relief.

(See 2018-TIOL-1291-CESTAT-MUM)