By TIOL News Service

MUMBAI, FEB 09, 2015: THE lower authorities confirmed a Service Tax demand of Rs.2,37,711/- against the appellant for the period 01/04/2011 to 31/03/2012 by classifying the financial advisory services undertaken by them as "Banking and financial service". Penalties and interest were also imposed & upheld.

Before the CESTAT, the appellant submitted that during the relevant period, the appellant was a "stock broker" registered with SEBI for dealing in shares on behalf of the clients and they were registered with the department as a stockbroker only. Moreover, only the services by a banking company or a financial institution including a non-banking financial company was liable to service tax when rendered in relation to financial advisory services.

Inasmuch as since the Appellant was not a "financial institution" as defined in section 45-I(c) of the RBI Act, 1934, they were not liable to Service Tax, the appellant emphasized.

In the context of the allegation of the department that the appellant falls within the definition of section 45-I(c) i.e the acquisition of shares, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature, it is submitted that the appellant does not acquire any shares, bonds, etc. for themselves and whatever shares they purchase and sell are on behalf of the clients in the capacity of a broker and, therefore, the appellant is not a financial institution as defined in the RBI Act.

Reliance is also placed on the decision in Karvy Consultants Ltd. - 2005-TIOL-203-HC-AP-ST.

The AR reiterated the findings of the lower authorities.

The Bench observed -

+ To fall within the tax net, the appellant has to be a banking company or a financial institution including a non-banking company. Obviously, the appellant is not a banking company or a non-banking financial company.

+ As per the definition of "financial institution", only when the appellant carries on business of acquisition of shares, bonds, debentures or securities issued by a Government or Local Authority or other marketable securities of a like nature, the appellant can be categorized as a financial institution.

+ Merely because the appellant is registered as a stockbroker with the SEBI, which is a statutory requirement the appellant cannot be considered as a financial institution. If that be so, all stock brokers dealing in shares/securities would be financial institutions which is a totally wrong interpretation of the statutory definition of a financial institution.

+ There is also no evidence available on record to show that the appellant has been registered under the RBI Act as a "Financial institution".

Holding that the conclusion of the lower authorities that the appellant is a financial institution as defined in the RBI Act cannot be sustained, the order was set aside and the appeal was allowed with consequential relief.

(See 2015-TIOL-287-CESTAT-MUM)