Service tax on commission received by Primary Dealers dealing in Government Securities - CBEC Clarification
BOARD has received a representation seeking clarification whether service tax is leviable on the underwriting commission received by the Primary Dealers for the auction of Government Securities.
Board observes:
“Government securities are sovereign securities having zero default risk. Reserve Bank of India only manages the issue and also auction of Government Securities on behalf of the Government of India. In effect, Primary Dealers registered with the RBI (as opposed to registration with the Securities Exchange Board of India) deal in Government Securities, issued by the RBI on behalf of the Government of India, as a part of the central Government's market borrowing program. The general practice is that the RBI invites bids from the Primary Dealers, who in their bids indicate the amount to be underwritten and the underwriting fee expected by them. RBI examines these bids and decides the amount to be underwritten and underwriting fee to be paid to a Primary Dealer. Underwriting Fee is also known as Underwriting Commission in common parlance. Thus the conclusion drawn is that government securities are not securities of a body corporate.”
And clarifies:
“As the service tax law stands today, service tax liability does not arise on Underwriting Fee or Underwriting Commission received by the Primary Dealers during the course of the dealing in Government Securities.”
Board wants the Commissioners to issue suitable Trade Notice/Public Notice.
CBEC Circular No. 126/08/2010 - ST Dated: August 10, 2010