Service tax on brokerage from Government bond sales was not sustainable where the activity formed part of a sovereign function.

Brokerage earned for facilitating the sale of Government bonds was treated as part of dealings in Government securities undertaken on behalf of RBI. Relying on prior authority and departmental clarification, the text states that such activity falls within a sovereign or statutory function and therefore does not attract service tax. On that basis, the demand was held unsustainable and set aside, with consequential relief to the assessee.

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Issues: Whether service tax was payable on brokerage received for sale of Government bonds while acting as an agent of the Reserve Bank of India.

Analysis: The brokerage arose from sale of Government bonds issued as part of the Government borrowing programme and treated as Government securities. The activity was undertaken on behalf of the Reserve Bank of India and was covered by the line of authority holding that such dealings in Government securities amount to a sovereign or statutory function. In view of the earlier decisions and the departmental clarification regarding no service tax on amounts earned in relation to Government securities, the demand could not be sustained.

Conclusion: The demand for service tax on the brokerage was not sustainable and was set aside.

Final Conclusion: The assessee succeeded and the appeal was allowed with consequential relief.

Ratio Decidendi: Brokerage earned for facilitating sale of Government securities in the course of a sovereign or statutory function is not liable to service tax.

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