Sovereign function through RBI-authorised Government business agency is not liable to service tax on commission earned.

A bank acting as an authorised agent of the Reserve Bank of India for Government business performs a sovereign function on behalf of the Government. On that basis, commission earned for such transactions is not exigible to service tax. The tribunal therefore held that the demand was unsustainable and that the appellant bank was not liable to service tax on the impugned activities.

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Issues: Whether the appellant bank was liable to service tax on commission received for transactions undertaken in the course of Government business as an agent of the Reserve Bank of India.

Analysis: The appeal turned on the character of the activities performed by the bank under authorisation of the Reserve Bank of India. The tribunal applied the settled position that where the bank is appointed as an agent of the Reserve Bank of India for transacting Government business, the activity is performed on behalf of the Government and assumes the character of a sovereign function. On that basis, the commission earned for such services does not attract service tax.

Conclusion: The appellant was not liable to service tax on the impugned activities and the issue was decided in favour of the assessee.

Final Conclusion: The demand of service tax was unsustainable and the appeal succeeded.

Ratio Decidendi: Activities undertaken by a bank as an agent of the Reserve Bank of India for Government business constitute a sovereign function performed on behalf of the Government and are not liable to service tax.

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