Sebi can’t pass on service tax liability to investors

Sebi receives Rs 150-200 cr a year for services to investors; will have to pay tax for period from July 1, 2012

Sebi's guidelines related to testing of software and trading systems are already applicable for stock exchanges and would now be applicable for commodity bourses. (Reuters photo)

Capital market regulator Sebi will not be able to pass on service tax liability to investors on various services it has rendered from July 1, 2012 till now, and will have to pay from its own pocket. Since the regulator cannot recover service tax dues for the period from July 1, 2012 till now from investors, the government has decided to consider the amounts the regulator has received during this period inclusive of the service tax component, officials said.

Sebi receives about R150-200 crore a year from various services to investors, including charges for processing public offer documents.

Under the service tax law, any consideration received for rendering a service is liable to tax unless exempted by a negative list, or by a list of exemptions. Sebi’s services do not enjoy any exemption unlike specified utilities extended by the state to citizens, or the services rendered by banks to the RBI.

“If Sebi is short of funds, the government can consider giving a grant. But service tax is liable on any consideration the regulator has received for rendering services,” explained a person privy to the government’s decision. Sources said regulators like Sebi and the Competition Commission of India (CCI) do not form part of the government, as these are only bodies set up under different Acts of Parliament. However, certain ‘statutory charges’ collected by regulators cannot be subject to service tax, they said.

Regulators’ service tax liability arises only from July 1, 2012 when the country moved to a negative list-based approach to taxing services, under which all but those in the negative and exemptions list are taxed. Prior to that, regulators’ services did not feature in the list of taxable services and were hence out of the tax net. Post-2012, these did not figure in the negative and exemptions list either, making them taxable.

Sebi cannot recover service tax from investors for the period from July 1, 2012 till now, and will have to cough up the same to the exchequer from what it has received.

Government sources said that this has always been the position of the law, though field officers of the department have recently moved to enforce it. The government’s collection from service tax grew 30.3% in July, and cumulatively it has grown 20.1% so far this fiscal to R60,925 crore.

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First published on: 29-08-2015 at 04:06 IST