Mumbai: The Bombay high court on Thursday directed the Central Board of Direct Taxes (CBDT) to file its reply by 23 August in a petition filed by the Association of National Exchanges Members of India (ANMI) against the National Stock Exchange (NSE) and Securities and Exchange Board of India (Sebi).

The brokers’ lobby ANMI moved the court against the capital markets regulator Sebi and NSE for holding brokers responsible for collecting Securities Transaction Tax (STT) on physical delivery of derivatives.

A division bench comprising justice R.M. Borde and justice P.K. Chavan allowed the CBDT time to file its reply after a request by the counsel for the revenue department.

The court had asked CBDT on Monday to provide clarity on the issue.

The ANMI’s plea is against a NSE decision to levy STT at 0.1% on derivative contracts of stocks that are physically settled. This is 10 times higher than the 0.01% STT levied on stocks that are cash-settled.

The court had directed CBDT to be present and provide clarity on the issue based, on which it will set a date for final directions.

The broker lobby’s contention is that there is no provision in the Finance Act to tax derivative trades on physical delivery.

Also, the ANMI feels that the exchange should not start physical delivery in the futures and options segment unless it issues a legal indemnity to its members from any future claims made by the government of India for non-collection of STT on F&O delivery.

The genesis of dispute lies in an NSE circular in April containing a list of 46 stocks whose derivatives contracts result in physical delivery of shares.

There has been confusion both over the levy and the rate of STT that should be levied on these transactions as it involves various legs of trade, such as buying and selling in futures, and final settlement via delivery, where the entire amount has to be paid.

This is the second legal forum that ANMI has approached on the dispute. ANMI had first moved the Securities Appellate Tribunal (SAT) seeking clarity on the matter.

However, SAT directed ANMI to approach other “appropriate forum for seeking remedy against the impugned circular at the earliest for the matter."

Nishit Dhruva, managing partner of law firm MDP & Partners who is representing ANMI in the case, and Vikram Trivedi, managing partner of law firm Manilal Kher Ambalal & Co, who is advising NSE, confirmed the development but refused to divulge any details since the matter is subjudice.

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