Finance ministry clears probe against Sebi in service tax case

The service tax department has got the nod from finance ministry to go ahead with its ongoing investigation against the stock markets regulator Securities and Exchange Board of India (Sebi) for not paying service tax of Rs 250 crore since 2012.

In a letter on Wednesday, the ministry of finance has told the Mumbai service tax department to continue its investigation and initiate further course of action. This follows Sebi's move seeking clarification from the ministry over the conflict of interest on the department's tax assessment.

"The department is in the process of issuing a show-cause notice to Sebi. It will be issued in next 15-20 days," a senior tax official told dna.

As per the final assessment by the service tax department, Sebi will be liable for the prescribed rate of interest on delayed payment, along with penalty, which could be 100% of the tax demand.

"Service tax liability on Sebi stood at Rs 250 crore between 2012 and 2015. The regulator need to pay interest and penalty," said the official.

The rate of interest on late payment of service tax depends on the extent of delay in the payment. Delay up to 6 months will attract 18% interest while it will be 30% for more than a year.

According to sources, Sebi can apply for compounding, if it agrees to pay the entire tax demand. This can reduce the penalty up to 15% from 100% of the total tax demand. Compounding of offence allows the accused to avoid a lengthy process of criminal prosecution, which would save cost, time and mental agony, in return for payment of compounding charges.

A Sebi spokesperson told dna: "The matter has been legally examined by Sebi and the legal opinion is that service tax is not applicable to the regulator." He said the regulator has represented to service tax authorities accordingly.

According to the department, Sebi provides services to stock exchanges, its members, brokers, investors for processing of IPOs, debt issues, mutual fund, new fund offers and other services including informal guidance to companies, all of which are liable for tax.

All the said services outside the negative list of service tax issued in 2012 are liable to pay tax.

Service tax sources said so far, Sebi was not ready to share details sought by the department. "They claimed that the regulator is exempt from all sorts of taxation," said an official.

"They have a conflict of interest over Section 25 of the Finance Act, which says that Sebi, as a board from the date of its constitution to the date of establishment, will not be liable to pay wealth tax, income tax or any other tax in respect of their wealth, income, profits or gains derived," said a source.

According to tax officials, the department has asked Sebi to furnish its fee income details earned between 2012 and 2015.

The tax department had issued several letters to Sebi to share details for assessing tax liability from 2012 onwards, but the market regulator has so far turned a blind eye to it.