Appellants win service tax dispute over RBI Bonds pre-2004 sales, time-barred demands set aside.

The Tribunal ruled in favor of the appellants, determining that the sale of RBI Bonds on a commission basis prior to September 2004 is not liable to service tax under "Banking and other Financial Services." The demands for service tax before September 2004 were found unsustainable due to the sovereign functions exemption for RBI's borrowing activities on behalf of the Government. The Tribunal also concluded that the demands were time-barred, ultimately setting aside the demands and providing consequential relief to the appellants.

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Issues:
- Whether the sale of RBI Bonds on commission basis is liable to service tax under "Banking and other Financial Services" for the period prior to 10/09/2004.
- Whether the demands for service tax prior to September 2004 are sustainable.
- Whether the demands are time-barred due to the appellant discharging service tax liability under "Business Auxiliary Service" from 10/09/2004 onwards.

Analysis:

Issue 1: Liability for Service Tax on Sale of RBI Bonds
The appellants, registered with the RBI, sold RBI Tax Savings Bonds 2003 on commission basis and received commission from RBI. The question was whether this activity falls under "Banking and other Financial Services" for the period before 10/09/2004. The appellants argued that similar activities were held non-taxable by the Tribunal in previous cases. They began discharging service tax under "Business Auxiliary Service" from 10/09/2004. The department argued that broking in Government Securities, including RBI Bonds, falls under "Banking and other Financial Services" and is taxable. The Tribunal noted that RBI's borrowing activities are on behalf of the Government and are sovereign functions exempt from tax. Following this principle and previous decisions, the demands for service tax were deemed unsustainable.

Issue 2: Sustainability of Demands
The Tribunal found that since the RBI's activities related to lending or borrowing money for the Government are sovereign functions, they are not subject to tax, whether direct or indirect. Citing precedents, the Tribunal concluded that demands for service tax on the sale of RBI Bonds prior to September 2004 were legally unsustainable.

Issue 3: Time-Barred Demands
The appellants contended that the demands were time-barred as they began paying service tax under "Business Auxiliary Service" from 10/09/2004 onwards. The department argued for upholding the demands. However, the Tribunal found the demands unsustainable on legal grounds, rendering the time-bar issue moot.

In conclusion, the Tribunal set aside the impugned demands and allowed the appeals, providing consequential relief as per the law. The judgment clarified the non-taxable nature of activities related to the sale of RBI Bonds on commission basis prior to September 2004, based on the sovereign functions exemption principle established in previous cases.

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