Custom, Excise & Service Tax Tribunal
Commissioner Of Service Tax, Mumbai vs M/S. Kotak Mahindra Capital Co. Ltd on 18 September, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. Appeal No. ST/193/2008-Mum. (Arising out of Order-in-Original No.31/COMMR(AK)/08 dt. 21.4.2008 passed by the Commissioner (Adj.) Central Excise, Mumbai ) For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. P.K.Jain, Member (Technical) ============================================================
1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
authorities?
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Commissioner of Service Tax, Mumbai
:
Appellant
VS
M/s. Kotak Mahindra Capital Co. Ltd.
:
Respondent
Appearance
Shri D.D. Joshi, Superintendent (A.R.) for Appellant
Shri Sushant Murthy, Advocate for respondent
CORAM:
Mr. S.S. Kang, Vice President
Mr. P.K. Jain, Member (Technical)
Date of hearing : 18/09/2013
Date of decision : 18/09/2013
ORDER NO.
Per : S.S. Kang
Heard both sides.
2. Revenue filed this appeal against the order passed by the Commissioner of Service Tax, Mumbai where the Commissioner of Central Excise held that Reserve Bank of India is not a body corporate. Therefore, the respondent cannot be said to have subscribed to the securities of body corporate to fall within the meaning of Underwriting as provided under Section 65 (105) (z) of the Finance Act, 1994.
3. The contention of Revenue is that Reserve Bank of India is body corporate and the subscription to securities of body corporate will fall within the meaning of underwriting as provided under the Finance Act. The contention is that as per the definition of underwriting under Section 65 (105) of the Finance Act, the underwriter has the meaning assigned to it in clause (f) of Rule 2 of the Securities and Exchange Board of Indian (Underwriters) Rules, 1993. As per Rule 2 (f), an underwriter means a person who engages in the business of underwriting of an issue of securities of a body corporate. The submission is that as Reserve Bank of India is body corporate. Therefore the respondents are liable to pay service tax in respect of government securities.
4. We find that Board now issued clarification vide Circular No. 126/8/2010-S.T. dated 10/08/2010 that government securities not the securities of body corporate relevant portion of the Board Circular is reproduced below:
Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi Subject : Service tax on commission received by Primary Dealers dealing in Government Securities - Regarding.
A representation has been received seeking clarification whether service tax is leviable on the underwriting commission received by the Primary Dealers for the auction of Government Securities.
2.?The matter has been examined. Underwriting service is taxable by virtue of section 65(105)(z) of the Finance Act, 1994. In the definition of taxable service, two technical terms are mentioned, namely underwriting and underwriter. The term underwriting [section 65(117) of the Finance Act, 1994] has the meaning assigned to it in clause (g) of rule 2 of the Securities and Exchange Board of India (Underwriters) Rules, 1993, which reads as follows :
underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them.
3.?The term underwriter as in section 65(116) of the Finance Act, 1994, has been borrowed from rule 2(f) of the Securities and Exchange Board of India (Underwriters) Rules, 1993, which reads as follows :
underwriter means a person who engages in the business of underwriting of an issue of securities of a body corporate. It is thus clear that under the above definitions underwriter or underwriting is about dealing in securities of a body corporate.
4.?The related issue requiring resolution is whether dealing in government securities amounts to dealing in securities of a body corporate, particularly since government securities are issued by the Reserve bank of India, which is a body corporate in terms of section 3(2) of the RBI Act, 1934.
5.?Government securities are sovereign securities having zero default risk. Reserve Bank of India only manages the issue and also auction of Government Securities on behalf of the Government of India. In effect, Primary Dealers registered with the RBI (as opposed to registration with the Securities Exchange Board of India) deal in Government Securities, issued by the RBI on behalf of the Government of India, as a part of the central Governments market borrowing program. The general practice is that the RBI invites bids from the Primary Dealers, who in their bids indicate the amount to be underwritten and the underwriting fee expected by them. RBI examines these bids and decides the amount to be underwritten and underwriting fee to be paid to a Primary Dealer. Underwriting Fee is also known as Underwriting Commission in common parlance. Thus the conclusion drawn is that government securities are not securities of a body corporate.
6.?As the service tax law stands today, service tax liability does not arise on Underwriting Fee or Underwriting Commission received by the Primary Dealers during the course of the dealing in Government Securities.
7.?Trade Notice/Public Notice may be issued to the field formations accordingly.
8.?Please acknowledge the receipt of this circular. Hindi version follows. In view of the above Circular as the respondents are dealing with government securities, we find no infirmity in the impugned order. The appeal is dismissed.
(Dictated in court) (P.K. Jain) Member (Technical) (S.S. Kang) Vice President Sm ??
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