Tribunal rules commission from RBI not taxable under service tax law. Appeal allowed overturning penalties.

The Tribunal ruled in favor of the nationalized bank, holding that the commission received from the RBI for agency services was not subject to service tax. The judgment emphasized the applicability of Notification No. 22/2006-ST and previous legal precedents. The appeal was allowed, setting aside the demand and penalties imposed by the Commissioner under Sec.77 & 78 of the Finance Act, 1994.

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Issues involved:
1. Liability of nationalized bank to pay service tax on commission received from RBI for agency services.
2. Applicability of Notification No. 22/2006-ST.
3. Imposition of penalties under Sec.77 & 78 of the Finance Act, 1994.

Analysis:

Issue 1 - Liability of nationalized bank to pay service tax:
The appellant, a nationalized bank, received commission from the RBI for agency services. The Commissioner confirmed the demand for service tax, interest, and penalties. The appellant contended that the commission received for maintaining pension accounts of Government employees, a sovereign function, should not be taxed. The Tribunal referred to precedents and held that banks acting as agents to the RBI for government transactions are not liable to service tax on the commission received. The Tribunal relied on the definition of "assessee" in Section 65(7) of the Finance Act, acknowledging that the person liable to pay service tax includes the agent. Consequently, the appeal was allowed, setting aside the demand.

Issue 2 - Applicability of Notification No. 22/2006-ST:
The appellant argued that Notification No. 22/2006-ST should exempt them as agents of the RBI receiving commission. The Tribunal upheld this argument, citing the exemption granted to services provided to or by the RBI under the notification. The Tribunal emphasized that the larger bench decision established that banks receiving commission as agents to the RBI are not subject to service tax. This interpretation was consistent with the settled legal position and previous case laws, leading to the allowance of the appeal.

Issue 3 - Imposition of penalties under Sec.77 & 78:
The appellant challenged the penalties imposed under Sec.77 & 78, contending that they were contrary to Sec.80 of the Finance Act, 1994. However, the Tribunal did not delve into this issue as the primary matter of liability for service tax was resolved in favor of the appellant based on the applicability of Notification No. 22/2006-ST and established legal interpretations. Consequently, the penalties under Sec.77 & 78 were not addressed explicitly in the judgment.

In conclusion, the Tribunal ruled in favor of the appellant, a nationalized bank, holding that the commission received from the RBI for agency services was not subject to service tax. The judgment emphasized the applicability of Notification No. 22/2006-ST and the legal precedent set by previous decisions. The appeal was allowed, setting aside the demand and penalties imposed by the Commissioner.

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