Retrospective service tax relief for commodity exchanges

CBEC satisfied it was prevalent practice not to levy the tax

In some relief to commodity exchanges, the government today said that no service tax would have to be paid on services provided by sub-brokers to the members of commodity exchanges during 2004-2012.

A service tax of 12.36 per cent is applicable on such services. However, in actual not many people were levying it and the tax department is satisfied that a practice was generally prevalent.

“The Central government hereby directs that the service tax payable on the services provided by an authorised person or sub-broker to the member of a recognised association or a registered association, in relation to a forward contract, shall not be required to be paid in respect of such taxable service on which the service tax was not being levied during the period commencing from the 10th day of September 2004 and ending with the 30th day of June 2012 in accordance with the prevalent practice,” the Central Board of Excise and Customs said in a notification today.

Industry experts said since the tax was not being paid it would be a mere clarification so that tax officers don’t come after the assessees for not-payment of taxes.

“The exemption will help sub brokers to earn a bit more and reduce the un-necessary paper work, as they will no longer have to remit service tax on sub brokerage (for period during 2004-2012) ,” said Ajay Kedia, MD of Kedia Commodities.

However, from June 1, 2012 everybody would have to pay this tax as the Negative List for taxation of services came into effect. Under the Negative List, all services barring those mentioned in this list or specifically exempted by the government, automatically become taxable.

“The tax was applicable but since due to industry practice nobody was paying the service tax department has accepted that practice. In strict legal interpretation you need to pay the tax, but now they have clarified that it need not be paid,” said R Muralidharan, Executive Director, PwC.

Experts said the flip side is that people who already paid service tax during this period would not get it back. Something similar was earlier done in case of road transportation.