Exemption for RBI agent services extends to bank commission on Government transactions under the statutory agency framework.

A bank acting as an agent of the Reserve Bank of India for Government transactions under the statutory framework was treated as covered by the exemption in Notification No. 22/2006-Service Tax. The Tribunal accepted that the exemption available to the Reserve Bank of India could not be denied merely because the taxable services were performed through an authorised agent, and treated the activity as part of the sovereign function of transacting Government business. On that basis, the service tax demand on the agency commission was held unsustainable, and the demand and penalties were set aside to the extent covered by the exemption.

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Issues: Whether the service tax demand on agency commission received by a bank for carrying on Government transactions as an agent of the Reserve Bank of India was exempt under Notification No. 22/2006-Service Tax dated 31.05.2006.

Analysis: The bank acted as an agent of the Reserve Bank of India under section 45 of the Reserve Bank of India Act, 1934, for carrying out statutory Government transactions. The exemption notification covered taxable services provided to or by the Reserve Bank of India, including services where tax was payable by the Reserve Bank of India under reverse charge and services received from outside India by the Reserve Bank of India. The Tribunal relied on the larger Bench view that the statutory agency of the bank brought its commission for such activities within the benefit extended to the Reserve Bank of India, and that the same exemption could not be denied merely because the services were performed through an agent. The Tribunal also treated the activity as part of the sovereign function of transacting Government business on behalf of the Reserve Bank of India.

Conclusion: The service tax demand on the agency commission was not sustainable and the exemption applied in favour of the assessee.

Final Conclusion: The assessee's appeal was allowed and the Revenue's appeal was rejected, with the demand and penalties set aside to the extent covered by the exemption.

Ratio Decidendi: Where a bank acts as an agent of the Reserve Bank of India under the statutory framework for performing Government transactions, the exemption available to the Reserve Bank of India under Notification No. 22/2006-Service Tax extends to the agent as well for the same taxable services.

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