In a major relief to the sub brokers in the commodity trading exchanges, the Central Board of Excise and Customs has waived the requirement for payment of service taxes by the sub brokers to the main broker for dealings made in forward contract for the period from 2004 till 2012.

According to the officials, this decision will put an end to the major litigations arising from this practice. The brokers of the commodity exchanges had represented against this move as this leads to double taxation since the main broker or the member of the commodity exchange pays service tax. If the sub broker taking the main broker's services pays service tax it is doubly taxing the same service and mostly the main broker gets credit against this service tax paid by the sub broker. There was hardly any revenue gain out of this, they added.

The government anyway realising this difficulty has exempted payment of service tax by sub broker for the services of the main broker post 2012. In the meantime, since the recovery drive is in full sing for the service taxes, many field formations have issued show cause notices to sub brokers of the commodity exchanges. Anticipating the litigations to surface once again, the board decided to clarify this. Accordingly, the show cause notices will get settled.

Officials further clarified that as per survey conducted by the department, not many sub brokers have paid any, levy on this account and therefore show because notices were rife. However if any sub broker has paid any service tax on this account, it can claim a refund of the same. Sub borkers of the equity market all along exempt from this practice whereby the sub broker pays service tax for the service of the main broker registered with the stock exchange.

At present sub brokers of all exchanges are exempted from payment of service taxes. However the field formation has become active in recovery after the completion of the voluntary compliance encouragement scheme ( VCES) the first such tax amnesty scheme was announced in 1997 under VDIS. VCES that completed in December 31, 2013 fetched the government a total revenue of around Rs 6000 crore.