The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the stock-broker is not liable to pay service tax on the recovery of cost incurred for VPN from the sub-brokers as the same would not amount to ‘Business Support Service’ under the Finance Act,1994.
The appellant is a Stock- Broker. He appointed several sub-brokers and made arrangements for a Virtual Private Network (VPN) with a view to provide the facilities for interconnection of the sub-brokers with the appellant and inturn access the stock exchanges.
A part of the cost incurred for VPN by the appellant was recovered from the sub –brokers. The Revenue held that the Service Tax is leviable on such charges recovered from the Sub- Brokers under the category of “Business Support Services” as the appellant has provided support services for business of the sub-broker.
The appellant contended that the cost of providing the VPN was shared with the sub-brokers.
After hearing both sides, the bench noted the appellant has set up a VPN, and such network was utilised not only by the appellant but also their subbrokers to access the various stock exchanges for putting through their transaction in securities.
“It is to be noted that the arrangement for the VPN was not made by the appellant by way of a support service for the sub-brokers. Evidently, there is no service provider – service receiver relationship between the appellant and the sub-brokers. A part of the cost involved in the VPN has been recovered from sub-brokers as their share of the expenditure. It appears to us that this is a cost-sharing arrangement and not in the form of a service provider-service receiver relationship. Consequently, we are of the view that there is no justification for levy of Service tax under the category of ‘Business Support Services”. Further, after going through the relevant definition appearing in Section 65(104c) of the Finance Act, 1994 we find that the activity is not covered by any of the services listed therein. Consequently, we set aside the demand for Service Tax under this category.”
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