The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has upheld a service tax demand against a stock broker for failing to include turnover/transaction charges in the taxable value of its services.
The bench of Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) ruled that the assessee could not escape liability by claiming a bona fide belief regarding taxability and held that the extended period of limitation was rightly invoked due to suppression of material facts.
The appellant, a registered provider of “forward contract services,” was subjected to departmental scrutiny for the period from 1 April 2007 to 31 March 2012. During this period, the department found that the assessee had collected ₹50.04 lakh from clients towards turnover/transaction charges in addition to brokerage.
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While service tax had been discharged on brokerage income, the turnover/transaction charges were excluded from the taxable value. Consequently, the department alleged short payment of service tax amounting to ₹5.53 lakh, along with applicable interest and penalties. A show cause notice was issued on 11 October 2012, and the demand was subsequently confirmed by the adjudicating authority as well as the Commissioner (Appeals).
Before the Tribunal, the appellant did not dispute the taxability of turnover/transaction charges after 16 May 2008, acknowledging that statutory amendments had made such charges includible in the taxable value of stock broking services.
Instead, the appeal was confined to the issue of limitation. The assessee argued that there was considerable confusion in the industry regarding valuation of taxable services during the relevant period and that it genuinely believed only brokerage or commission attracted service tax. It was therefore contended that there was no suppression of facts warranting invocation of the extended limitation period.
The department argued that the Central Board had already issued TRU Circular dated 19 April 2006, clarifying that service tax was payable on the gross amount received by stock brokers. It further submitted that the appellant was not acting as a “pure agent” while collecting turnover charges and therefore those amounts could not be excluded from the taxable value.
The department maintained that non-disclosure of these receipts resulted in deliberate evasion of tax, justifying invocation of the extended period under the Finance Act.
The Bench comprising Dr. Rachna Gupta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member)rejected the appellant’s plea that confusion existed regarding the taxability of turnover charges.
The Tribunal observed that both the TRU Circular dated 19 April 2006 and the subsequent CBEC Circular dated 17 September 2010 had clarified the valuation mechanism applicable to stock brokers. It further referred to its earlier decision in Raj Commodities v. Commissioner (Appeals), Central Excise, Jaipur, which examined the treatment of turnover charges and the concept of a “pure agent” under Section 67 of the Finance Act.
An important factor that influenced the Tribunal was the appellant’s own correspondence with the department.
The Bench noted that the appellant had written to the department as early as 19 December 2006, seeking clarification on whether transaction charges could be treated as reimbursable expenses. The department had rejected that request. According to the Tribunal, this demonstrated that the assessee was fully aware of the issue and could not subsequently claim ignorance or bona fide belief regarding its tax liability.
The Tribunal also recorded that the appellant had failed to file the relevant service tax returns, despite paying service tax on brokerage receipts.
This omission, coupled with the failure to disclose turnover/transaction charges, constituted wilful suppression of material facts with the intention to evade payment of service tax. The Bench relied upon the Mumbai Bench decision in Commissioner v. Jai Bharat Automobiles Ltd., which held that extended limitation can be invoked where an assessee deliberately fails to disclose taxable receipts despite being aware of its tax obligations.
Finding no merit either on limitation or on the substantive issue of taxability, the Tribunal upheld the orders passed by the lower authorities.
CESTAT dismissed the appeal and sustained the service tax demand, interest, and consequential liabilities against the appellant.
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