By TIOL News Service

NEW DELHI, APR 10, 2014: THE appellant is engaged in stock broker service. They are making payments towards stock exchanges, on behalf of their clients in advance, irrespective of the receipt of transacted amount. In cases, their clients made any delay in making payments to the appellants, they collected ‘Delayed Payment Charges' (DPC) from their clients, which is being done by making debit entries in the ledger maintained by the appellants. It is the case of the department that these charges are includable in the taxable value in terms of Section 67 of the Finance Act, 1994 as the said charges are part and parcel of the services and hence liable to service tax. On the other hand, it is the contention of the appellants that such DPC is not in lieu of stock broking service but is a penal recovery for late payment of the dues by the clients.

After hearing both sides, the Tribunal held:

The DPCs are being collected by the appellants only from those clients, who have not paid them well within the time limit period and the appellants being under a legal contract with the Exchange, had to deposit the value of the securities, sold or/and purchased by their clients. As such, the nature of the said DPCs being a penal charge, is established. Where there is no delay in making payments by the clients, no DPC is being charged from them. As such, one thing becomes clear that such DPC is not on account of any stock-broking services being provided by the appellants.

DPC is not a commission or a brokerage for sale/purchase of securities, as the same is not being collected from each and every customer but is relatable to only delayed payments by some of the customers, there is no justification for inclusion of the same in the value of the services.

Department is also in appeal against dropping of demand by the Adjudicating Authority in respect of services rendered through branch office / sub-brokers in Jammu and Kashmir. The tribunal dismissed the revenue appeal by holding that the said services, which are being provided by various sub-brokers located in Jammu & Kashmir to the people of Jammu & Kashmir, would not be taxable in terms of Section 64 of the Finance Act, 1994.

(See 2014-TIOL-539-CESTAT-DEL)