Case Note & Summary
The Principal Commissioner of CGST & Central Excise, Mumbai East, filed an appeal under Section 35(G) of the Central Excise Act, 1944 against the order dated 23/07/2020 passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai. The CESTAT had allowed the appeal of the Securities and Exchange Board of India (SEBI) and set aside the order-in-original dated 02/05/2018 passed by the Principal Commissioner, which had demanded service tax of Rs.75,22,81,847/- for the period 1st July 2012 to 31st March 2015 under Section 73(2) of the Finance Act, 1994, along with interest under Section 75 and penalty under Section 78 of the said Act. The Commissioner had also confirmed a demand of Rs.55,07,78,305/- for the period October 2012 to September 2013 under Section 73(2) with interest and penalty. The issue was whether SEBI is liable to pay service tax on the fees collected by it under the Securities and Exchange Board of India Act, 1992. The appellant argued that SEBI provides services to the capital market and collects fees as consideration, thus falling within the definition of 'taxable service' under Section 65(105)(zzzz) of the Finance Act, 1994. The respondent contended that the fees are statutory levies under the SEBI Act, 1992 and not consideration for any service, and that SEBI performs regulatory functions, not taxable services. The court analyzed the provisions of the Finance Act, 1994 and the SEBI Act, 1992, and held that the fees collected by SEBI are statutory levies under the SEBI Act, 1992 and do not constitute consideration for any service provided to the persons from whom fees are collected. The court further held that a taxing statute must be strictly construed and that the definition of 'taxable service' under Section 65(105)(zzzz) does not cover regulatory functions performed by a statutory body under its parent Act. The court also noted that there was no suppression of facts with intent to evade tax, as SEBI bona fide believed that no service tax was payable. Consequently, the court dismissed the appeal and upheld the CESTAT order.
Headnote
A) Service Tax - Levy on Regulatory Fees - Section 65(105)(zzzz) of Finance Act, 1994 - Whether fees collected by SEBI under SEBI Act, 1992 constitute consideration for taxable service - Held that fees collected by SEBI are statutory levies under the SEBI Act, 1992 and not consideration for any service provided to the persons from whom fees are collected; hence, not liable to service tax (Paras 1-10). B) Service Tax - Interpretation of Taxing Statute - Strict Construction - Finance Act, 1994 - Scope of taxable service - Held that a taxing statute must be strictly construed; the definition of 'taxable service' under Section 65(105)(zzzz) of the Finance Act, 1994 does not cover regulatory functions performed by a statutory body under its parent Act (Paras 11-15). C) Service Tax - Penalty - Section 78 of Finance Act, 1994 - Suppression of facts - Held that when the assessee bona fide believed that no service tax was payable on statutory fees, there is no suppression of facts with intent to evade tax; penalty under Section 78 is not imposable (Paras 16-18).
Issue of Consideration
Whether the Securities and Exchange Board of India (SEBI) is liable to pay service tax on the fees collected by it under the Securities and Exchange Board of India Act, 1992 for the period July 2012 to March 2015.
Final Decision
The appeal is dismissed. The order of CESTAT dated 23/07/2020 is upheld. No order as to costs.
Law Points
- Service tax is leviable only on taxable services provided for consideration
- statutory levies collected under a regulatory framework do not constitute consideration for a service
- the Finance Act
- 1994 does not tax regulatory functions performed by statutory bodies under their parent Acts
