Scheduled banks' service tax exemption on government business banking services referred to Larger Bench for strict interpretation

The Appellate Tribunal CESTAT New Delhi referred the issue of whether a scheduled bank acting as an agent of the Reserve Bank of India, receiving a commission for providing banking services related to government business, is entitled to service tax exemption under Notification No. 22/2006-S.T., to a Larger Bench for consideration. The Tribunal highlighted the need for a strict interpretation of exemption notifications and directed the Registry to bring the matter before the Hon'ble President for further administrative actions.

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Issues: Interpretation of Notification No. 22/2006-S.T. for exemption of service tax on banking services provided by a scheduled bank acting as an agent of the Reserve Bank of India.

In this judgment by the Appellate Tribunal CESTAT New Delhi, the Division Bench interpreted Notification No. 22/2006-S.T., which exempts certain taxable services from service tax. The Tribunal noted a previous decision where it was held that a bank acting as an agent of the Reserve Bank of India is entitled to the same exemptions as the Reserve Bank under this notification. However, the Tribunal expressed the view that such an interpretation may need further analysis due to the principle that exemption notifications must be strictly construed. The Tribunal decided to refer the issue to a Larger Bench for consideration, specifically questioning whether a scheduled bank, receiving a commission from the Reserve Bank for providing banking services related to government business, is entitled to service tax exemption as an agent of the Reserve Bank under Notification No. 22/2006-S.T. The Registry was directed to place the matter before the Hon'ble President for necessary administrative actions.

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