Custom, Excise & Service Tax Tribunal
Iifl Holdings Ltd vs Commr Service Tax- Vii Mumbai on 22 July, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 85951 of 2017
(Arising out of Order-in-Original No. 120/ST-VII/CD/2016 dated 30.03.2017
passed by the Commissioner of Service Tax-VII, Mumbai)
IIFL Holdings Ltd. .... Appellant
Hubtown Solaris Office, No.1, Ground Floor,
N.S. Phadke Marg, Near East-West Flyover,
Andheri East, Mumbai- 400 069.
Versus
Commissioner of Service Tax-VII, Mumbai .... Respondent
16th Floor, Satra Plaza, Palm Beach Road, Sector 19D, Vashi, Navi Mumbai- 400 705.
APPEARANCE:
Shri Vinay Jain, Advocate a/w Ms Shambhavi Dewalkar, Chartered Accountant, for the Appellant Shri C.S. Pavan, Authorized Representative for the Respondent CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL) HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL) FINAL ORDER NO. A/86163/2025 Date of Hearing: 22.07.2025 Date of Decision: 22.07.2025 Per: S.K. MOHANTY Heard both sides and examined the case records.
2. The appellants herein are the Stock Brokers, registered with the Security Exchange Board of India (SEBI). The appellants are also the members of Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). As the member of the stock exchanges, the appellants execute trades on behalf of the clients registered with those stock exchanges. The appellants charge brokerage from their clients for executing purchase and sale of securities on BSE and NSE platform on their behalf. For provision of such service, the appellants duly 2 Service Tax Appeal No. 85951 of 2017 discharged the service tax liability under the category of 'stock broker service'. In addition to provision of such taxable service, the appellants also collect the transaction charges levied by the BSE and NSE from their clients and deposit with the stock exchanges, without any mark-up/profit. The transaction charges collected from the clients and deposited with the stock exchanges were considered by the department as reimbursement of expenses and as per the provisions of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, the department had interpreted that such transaction value should be added to the gross value for the purpose of levy of service tax thereon. On the basis of such understanding, proceedings were initiated by the department, which culminated into the order-in-original (for short, referred to as the 'impugned order') dated 30.03.2017, wherein the learned Commissioner of Service Tax-VII, Mumbai has confirmed the adjudged demands on the appellants. Feeling aggrieved with the impugned order dated 30.03.2017, the appellants have preferred this appeal before the Tribunal.
3. It is an admitted fact on record that with regard to the stock broking services provided by the appellants to their clients, appropriate service tax liability was discharged by them. However, with regard to the transaction charges collected from the customer and subsequently deposited with the stock exchanges were considered as element of gross value by the department for the purpose of payment of service tax thereon. With regard to the reimbursable expenses without any mark-up/profit, the Central Board of Excise and Customs (CBEC) in their instructions dated 17.09.2010, at paragraph 5, has clarified that in case of expense is the liability of the service provider, it has to be included in the taxable value; on the contrary, if it is the liability of the service receiver, which the service provider pays to the stock 3 Service Tax Appeal No. 85951 of 2017 exchanges, acting as a pure agent, then such amount is not includible in the taxable value. We find that the department had confirmed the service tax demand in respect of the transaction charges under Rule 5 of the Rules of 2006. The said Rule has been struck down by the Hon'ble Delhi High Court, in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs. Union of India - 2013 (29) S.T.R. 9 (Del.). The said judgement of the Hon'ble Delhi High Court was also upheld by the Hon'ble Supreme Court, reported in 2018 (10) G.S.T.L. 401 (S.C.). Considering the scope and ambit of Rule 5 ibid and the judgements delivered by the judicial forum in the case of Intercontinental Consultants & Technocrats Pvt Ltd. (supra), the Co- ordinate Bench of the Tribunal in the case of M/s. Aditya Birla Money Ltd. & Others Vs. Commissioner of CGST & Central Excise, Chennai - 2025 (3) TMI 506 CESTAT Chennai, has allowed the appeal holding as under:
"8. We find that the appellate authority has upheld the impugned orders in original finding that the reliance placed by the adjudicating authority on Rule 5(1) of the Valuation Rules in confirming the demands made by the impugned orders in original, is tenable in law and that the appellants do not satisfy the conditions to bring them within the ambit of pure agent as per Rule 5(2) of the Valuation Rules. The demands in both these appeals pertain only to the amounts that was reimbursed to the appellants and which the appellant had paid to the respective stock and commodity exchanges and the service tax liability quantified thereon.
9. We find that the issue is no more res-integra in view of the decision of the Honourable Supreme Court in the case of UOI v Intercontinental Consultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (SC) which has considered the issue of liability to pay service tax on reimbursable expenses received by the service provider in the course of rendering services for the client, apart from the consideration received for rendering the services on which the client has discharged the liability to pay service tax. The Honourable Supreme Court affirmed the decision of the Delhi High Court in Intercontinental Consultants & Technocrats Pvt Ltd v UOI, 2013 (29) STR 9 (Del), wherein Rule 5(1) of the Service Tax Valuation Rules, 2006 which provided for inclusion of expenditures or costs incurred by the service provider in the course of providing taxable services, in the value of such taxable services, was stuck down as ultra vires Section 66 and Section 67 of the Act and as travelling beyond the scope of the said sections. The Honourable Supreme Court had also noticed the nature of reimbursable expenses that arose for
4 Service Tax Appeal No. 85951 of 2017 consideration in the facts of the case as well as that in connected appeals before it, and has gone on to hold as under:
"21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act.
22. Section 66 of the Act is the charging Section which reads as under:
"there shall be levy of tax (hereinafter referred to as the service tax) @12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed."
23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various subclauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services'. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon.
24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.
25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of subsection (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider.
26. It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner :
"Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the byelaw, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with."
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27. The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act.
28. It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel :
"the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect."
29. In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May 14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the Learned Counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited [(2015) 1 SCC 1] wherein it was observed as under :
"27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of "interpretation of statutes". Vis-a-vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [(1870) LR 6 QB 1] , a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
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29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L 'Office Cherifien des Phosphates v. Yamashita- Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later."
30. As a result, we do not find any merit in any of those appeals which are accordingly dismissed. (emphasis supplied)"
10. Considering the Honourable Supreme Court's decision reproduced supra which is squarely applicable in the facts and circumstances of the appellants' case in both these appeals, we are of the view that the impugned orders in appeal upholding the impugned orders in original cannot sustain. We also find force in the contentions of the learned consultant for the appellant that the issue involved was of interpretational nature pertaining to the Valuation Rules and no evidence of malafides has been adduced that would attract the extended period of limitation or warrant imposition of penalties. In sum, the demands of service tax, the consequential interest thereon as well as penalties imposed are wholly unsustainable. Accordingly, the impugned orders in appeal are set aside and the appeals are allowed with consequential relief in law."
4. In view of the foregoing discussions and especially, in view of the fact that the service tax demand cannot be fastened by taking recourse to Rule 5 of the Rules of 2006, we are of the view that the adjudged demands confirmed in the present case against the appellants cannot be sustained. Therefore, the impugned order is set aside and the appeal is allowed in favour of the appellants.
(Dictated and pronounced in open court) (S.K. Mohanty) Member (Judicial) (M.M. Parthiban) Member (Technical) SM