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Commodity, stock exchanges may get service tax relief
October, 23rd 2006
Stock and commodity exchanges could be on their way to get some relief on the service tax front. The Central Board of Excise and Customs is examining whether onscreen services provided by stock and commodity exchanges to their members are taxable or not.

The board is likely to come out with a clarification on the issue soon. Bombay Stock Exchange and National Stock Exchange have represented their case to the board seeking relief on the issue. Their contention is that they only charge a membership fee from members and there is no separate charge for additional services they provide.

But service tax field formations in Mumbai had raised a demand against the payment made towards these services from BSE and NSE from May this year, the government has brought in clubs and associations under the service tax net.

The exchanges have contended that as per the new regulations, the membership fee paid to exchanges is taxable only from this year. So, the liability to pay the tax by exchanges has arisen only from this year.

But, the department has contended that these services fell under banking and other services, which were brought under the service tax net in 01. Accordingly, the service tax is leviable with retrospective effect.

This can hit stock exchanges hard compared with the commodity exchanges like NCDEX and MCX, which came into being only in 03. Stock exchanges are liable to be covered for the online trading platform, online information regarding trading volume and stock prices, which facilitates its members in transacting its business, with effect from 01.

The field formations had undertaken a survey and collected data to substantiate its claims. Their contention is the charges levied by stock exchanges are structured to cover the various services provided by them to their members.
Stock broking was among the first service which was brought under the tax net along with telecom and insurance when the government first brought in the levy in 1994.

CBEC is also examining the levy of service tax on the statutory charges collected by NSE from its members. Exchanges charge fees from brokers on the basis of their monthly business turnover. This fee is in addition to the system usage charge, deposits and margins collected from its members.
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