RBI agent bank exemption for government-banking commission held not liable to service tax under Notification No. 22/2006-ST

A nationalised bank appointed by the RBI as its agent for collecting and remitting government taxes was considered entitled to the service tax exemption under Notification No. 22/2006-ST on commission earned for those functions. The reasoning was that the RBI is the statutory banker of the Government, may appoint banks as its agents under the RBI Act, 1934, and the Finance Act, 1994 treats an assessee's agent within the tax framework. On that basis, services performed by the agent in discharge of RBI government-banking functions were treated as covered by the exemption, and the commission was held not chargeable to service tax.

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Issues: Whether a nationalised bank appointed by the Reserve Bank of India as its agent for collection and remittance of government taxes is entitled to exemption from service tax on commission received for such services under Notification No. 22/2006-ST.

Analysis: The Reserve Bank of India is the statutory banker of the Government and Sections 20, 21 and 21A of the Reserve Bank of India Act, 1934 entrust it with government banking business. Section 45 of that Act empowers the Reserve Bank of India to appoint national banks and other specified banks as its agents for receiving payments on its behalf. The Finance Act, 1994 defines an assessee to include his agent. On that footing, the commission earned by the bank for performing the Reserve Bank of India's government-business functions was held to fall within the exemption granted for services provided to or by the Reserve Bank of India.

Conclusion: The commission was held not liable to service tax and the exemption was extended to the respondent bank.

Ratio Decidendi: Where a bank is appointed by the Reserve Bank of India as its agent under the Reserve Bank of India Act, 1934 for discharging government-banking functions, the exemption for services provided to or by the Reserve Bank of India applies to the agent as well, and the related commission is not chargeable to service tax.

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