The Securities and Exchange Board of India (Sebi) has filed an appeal in the goods and services tax (GST) tribunal against a tax demand of ₹210 crore for providing various services in the 2013-16 period, two people familiar with the development said.
This follows the failure of talks with the finance ministry officials to waive the tax demand, and greater conviction within the regulator that it has a strong case under the Finance Act.
The case pertains to tax liability on services provided by Sebi to entities such as stock exchanges, their members, brokers and investors for processing initial public offerings, debt issues, mutual funds and new fund offers, besides providing informal guidance to firms.
In 2013, the tax department had said these services were not in a ‘negative list’ of non-taxable services and were hence taxable.
The Union Budget 2016-17 amended the Finance Act, and services of Sebi—as well as those of Insurance Regulatory and Development Authority of India, Pension Fund Regulatory and Development Authority and Employees’ Provident Fund Organisation—were added to the negative list with prospective effect.
However, this made Sebi liable to pay taxes from April 2013 to April 2016. According to the first of the two people cited above who spoke on condition of anonymity, this comes to about ₹300 crore, including interest.
“Out of this, the commissioner of GST has passed an order of ₹130 crore of dues and ₹80 crore of interest on 3 May 2018,” the first person said.
The order came after three rounds of discussions with finance ministry to waive the tax demand failed, the first person added.
At a meeting of its board on 28 March, Sebi directors took up the question of whether the regulator should contest the tax demand or cough up the entire amount.
“The board decided that Sebi has a strong case to contest the tax demand and has filed an appeal in the tribunal against the tax department,” said the second person. The regulator claims these services are not taxable and are exempt under the Sebi Act, he said.
Section 25 of the Finance Act states that since the date of Sebi’s constitution to the date of establishment it is not liable to pay wealth tax, income tax or any other tax on their wealth, income, profits or gains derived.
An email sent to a spokesperson for Sebi on Tuesday was not answered till press time.
“Sebi is a statutory body and services provided by it are statutory in nature. For the government to defend the tax demand, it will need to satisfy three grounds. Whether Sebi is not a government, autonomous body; whether it is providing support services for businesses; and whether Sebi is making a deliberate attempt to avoid taxes. As the answer to all the three questions above is negative, then Sebi does have a very strong case,” said Amit Kumar Sarkar, head-indirect tax, BDO India LLP.