The appeal is directed against the order passed by the Commissioner of Central Excise, Kanpur demanding service tax of Rs. 22,615 under section 68(3) read with section 73 of the Finance Act, 1994 along with interest at the rate of 18 per cent from the appellant, Shri U.S. Choudhary a stock broker. In addition, he has also imposed penalty of Rs. 10,000 under section 78 of the Finance Act, 1994. The demand of service tax and interest from the appellant and the imposition of penalty were ordered on the ground that appellant had not paid service tax in respect of three transactions of sale of shares.

2. Appearing for the appellant, Ms. Manjula Gupta, learned counsel stated that the transactions in question were sales to stock brokers registered with stock exchange other than U.P. Stock Exchange with which he is registered. Service tax is attracted only for services provided to an investor. A member of stock exchange is not to be considered as an investor for purpose of levy of service tax.

3. Appellant had initially collected service tax in respect of the sales to the concerned stock brokers but later on coming to know the correct legal position, appellant had refunded such amounts to them. This was brought to the notice of the department. The Commissioner did not accept the plea and treated such transaction also as service provided to an investor. This is not correct. The demand of service tax and interest and imposition of penalty are not warranted. Learned Counsel pleaded that the order be set aside and the appeal allowed.

4. The submissions were resisted by Shri Sanjiv Srivastava, learned departmental representative. He supported the impugned order. He stated that while transactions are entered into between stock brokers of the same exchange, it is robbing and no investor is involved and, accordingly, no taxable service is provided and no service tax is involved. That is not so when the transaction is between a broker registered with one stock exchange. This is, however, arbitrage. Here an investor is involved and levy of service tax is called for. He justified the imposition of penalty as appellant had suppressed the fact about collection of brokerage and evaded payment of service tax due.

5. Both sides filed written notes of submissions outlining their respective stand. In the note filed by learned counsel for the appellant, while reiterating the submissions tendered during the hearing, it is urged that in transactions between stock brokers who are not members of the same exchange but different, no service tax is attracted as may be seen from the bills covering sales to the appellant by brokers registered with the National Stock Exchange, Bombay. Imposition of penalty was not warranted in any case, it is stated.

6. In the note submitted by the departmental representative, reference has been made to the bye-laws of the Uttar Pradesh Stock Exchange Association Ltd. Bye laws 205 and 217 were extracted and it was pointed out that vide Bye law 205, transactions of the brokers of the exchange with members of other exchanges provided for charging of brokerage while provisions relating to brokerage in Bye law 217 were not applicable to dealings between members. These bye laws lay down the distinction between member and non-member of the U.P. Stock Exchange. It was, hence, urged that a person who is not registered with particular stock exchange is an investor.

7. I have considered the submissions. I have perused the record. The provisions for levy of service tax in section 65(1) of the Finance Act, 1994 which define Taxable Service as service provided to an investor..... If a broker sells shares to another broker, the latter cannot be treated as an investor. The brokers of the same exchange do not have to pay service tax for transactions between themselves but if the transaction is between a member of one stock exchange worth a non-member broker who is of another stock exchange, service tax is stated to be chargeable. The difference i