SEBI Reaches Supreme Court Against Tax Dues Notice by GST Department

SEBI Reaches Supreme Court

The Securities and Exchange Board of India (Sebi) has moved the Supreme Court against a service tax demand raised by the Central Goods and Services Tax (CGST) department. The Supreme Court registered the case on December 2, the official website showed.

The case pertains to two tax notices sent by the CGST commissioner in March 2016, demanding Rs 130 crore from Sebi in service tax dues. Sebi collects fees from various market intermediaries including stock exchanges, brokerages and clearing corporations. This is in the form of either registration fees or licence fees.

The tax department alleged that the fees collected by Sebi from market participants must be subject to a 14% service tax. Accordingly, it asked the regulator to pay a service tax of Rs 75.2 crore in the first notice and an additional Rs 55 crore in the second notice. These notices were for the fees collected by Sebi during the period 2012-2016.

However, Sebi has argued that the money it receives is exempt from any service tax since it is a statutory body. Lawyers said Sebi must not be asked to pay service tax for the fees it collects. “These are sovereign functions and statutory levies as per various regulations and there is no service being rendered by Sebi to the market institutions for the fees collected. In fact, Sebi is just discharging its obligations as a statutory body,” said Abhishek Rastogi, partner, Khaitan & Co. “In legal terminology, there is the absence of ‘quid pro quo’ and hence the absence of any service element.”

In this regard, the CGST Commissioner, did not agree with Sebi’s argument and passed orders against the market regulator. In 2018, Sebi filed an appeal against the order at Customs, Excise and Service Tax Appellate Tribunal(CESAT), Mumbai. In June 2020, CESAT ruled in favour of the tax department. Sebi has appealed this order.

Further, Sebi wanted the amendments to be introduced retrospectively. However, the government has not provided any further clarification. Under the Finance Act, 1994, any entity that is part of the so-called ‘negative list’ is exempt from service tax. Most government agencies fall under this negative list, which has been one of Sebi’s arguments.


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