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Issues: Whether service tax was payable on the commission received by a bank from RBI for carrying out Government-related banking transactions as an agent of RBI under the taxable head of banking and other financial services.
Analysis: The activity was examined in the light of the statutory scheme under the Reserve Bank of India Act, 1934, particularly the provisions dealing with RBI's exclusive authority to transact Government business and its power to appoint agents. The Tribunal followed its Larger Bench ruling that a scheduled bank appointed by RBI under Section 45 acts as RBI's agent, and that such agency activity in relation to Government business is covered by the exemption granted for taxable services provided to or by RBI under Notification No. 22/2006-S.T. The commission received for performing such sovereign Government functions was therefore not liable to service tax.
Conclusion: The service tax demand was unsustainable and the appeal succeeded in favour of the assessee.
Final Conclusion: The impugned order was set aside and the demand, interest, and penalties did not survive.
Ratio Decidendi: Where a bank acts as an agent of RBI for Government business under Section 45 of the Reserve Bank of India Act, 1934, the commission received for such activity is covered by the exemption for services provided to or by RBI and is not exigible to service tax.
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