No service tax on transaction charge

NEW DELHI: Clearing houses, stock exchanges and commodity exchanges have something to cheer about. Service tax would not be levied on the transaction charges collected by the bodies from their members.

The Central Board of Excise & Customs (CBEC), in a communication to field formations, has clarified that services provided by National Stock Exchange, Bombay Stock Exchange, Multi Commodity Exchange, National Commodities & Derivatives Exchange, Clearing Corporation of India and electronic platform of RBI were services but did not fall under the category of taxable services.

Their services did not fall under the ‘business auxiliary service’ as they were not performed on behalf of any other person. Also, their services could not be classified under the category of services provided by ‘clubs and associations’ as exchanges and clearing houses are corporate bodies which provide service to investors through a registered member.

However, services like online information provided by exchanges to market reporting agencies or TV channels would be liable to service tax.

The board has taken a view that the activities of exchanges and their clearing houses could not be called online information or data processing as these were only incidental to ensure transaction of stocks or commodities and their settlement, and was not their primary service. Last year, service tax authorities had issued show-cause notices to some members of the exchanges.

Stock exchanges charge fees from brokers on the basis of monthly turnover. The exchange is empowered to determine and collect fees, system usage charges, deposits and margins from its members.

The members also collect stamp duty and securities transaction tax on the value of transactions from their clients. The Association of Members of NSE of India (AMNI) had submitted a representation to the revenue department on the issue.