2018 (11) TMI 1673 - AT - Service Tax

Tribunal Rules Banking Companies Not Liable for Service Tax on RBI Agency Commission, Citing Exemption Notification.

The Tribunal dismissed the Commissioner (Appeals)'s order and allowed the banking company's appeal, ruling it was not liable for service tax on agency ... Banking and other Financial Services - commission received from RBI for carrying out activities of maintaining the accounts of Central and State Governments in the capacity of an agent of RBI - liability of service tax - HELD THAT:- The issue arising out of the present dispute is no more open for any debate in view of the decision of this Tribunal in the case of State Bank of Patiala [2016 (10) TMI 800 - CESTAT NEW DELHI-LB]. The Larger Bench of the Tribunal in the said decided case has held that scheduled bank is the agent of RBI under Section 45 of the Reserve Bank of India Act, 1934 and thus, should be entitled for exemption under Notification No.22/2006-S.T. dated 31.05.2006 from payment of service tax on taxable services provided to or by RBI. It has further been held that as an agent of RBI, since the scheduled bank is transacting sovereign Government business, the same should not be subjected to levy of service tax. Appeal allowed - decided in favor of appellant. Issues involved:1. Liability of a banking company to pay service tax on agency commission received from the Reserve Bank of India (RBI).Detailed Analysis:1. The case involved a banking company registered under the taxable category of 'Banking and other Financial Services' providing services as an agent of the RBI. The Service Tax Department initiated proceedings against the company for not paying service tax on agency commission received from the RBI. The department confirmed a service tax demand against the company, which was upheld by the Commissioner (Appeals).2. The main issue before the Tribunal was whether the banking company was liable to pay service tax on the commission received from the RBI for acting as an agent under the taxable head of 'Banking and other Financial Services.' The appellant argued that the issue was settled based on previous tribunal decisions, specifically citing the case of State Bank of Patiala and Canara Bank, which supported the exemption of service tax for banks acting as agents of the RBI.3. The Tribunal referred to the decision of the Larger Bench in the State Bank of Patiala case, which held that scheduled banks acting as agents of the RBI are entitled to exemption from service tax under Notification No. 22/2006-S.T. The Tribunal emphasized that as agents of the RBI transacting sovereign Government business, these banks should not be subjected to service tax. The Tribunal analyzed relevant sections of the RBI Act, highlighting the appointment of agents by the RBI for various transactions, including tax collections and payments.4. The Tribunal concluded that the banking company, being an agent of the RBI, should be extended the benefit of exemption from service tax, as provided under Notification No. 22/2006-S.T. The Tribunal emphasized that the definition of 'assessee' in the Finance Act includes agents liable to pay service tax. Therefore, the banking company, acting as an agent of the RBI, should not be liable for service tax on the commission received for transacting Government business on behalf of the RBI.5. Ultimately, the Tribunal dismissed the impugned order passed by the Commissioner (Appeals) and allowed the appeal in favor of the banking company, based on the settled position of law established by previous tribunal decisions. The Tribunal held that the banking company was not liable to pay service tax on the agency commission received from the RBI, in accordance with the exemption provided under Notification No. 22/2006-S.T.