RBI agency commission exemption from service tax upheld for banks handling Government business and related collections

Commission earned by banks acting as agents of the Reserve Bank of India for Government business was treated as covered by Notification No. 22/2006-ST. The exemption was read to apply to taxable services provided to the Reserve Bank of India, including agency functions for collection of taxes and payment of pension, as recognised in the larger Bench view followed in later decisions. On that basis, such commission was held not liable to service tax, and the demand of tax, interest and penalties could not be sustained.

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Issues: Whether commission received by banks for acting as agents of the Reserve Bank of India in carrying out Government business was exempt from service tax under Notification No. 22/2006-ST and, if so, whether the demand of tax, interest and penalties could survive.

Analysis: Notification No. 22/2006-ST exempts taxable services provided or to be provided by any person to the Reserve Bank of India where service tax is payable by the Reserve Bank of India under Section 68(2) of the Finance Act, 1994 read with Rule 2 of the Service Tax Rules, 1994, and also exempts taxable services provided or to be provided to any person by the Reserve Bank of India. The larger Bench decision relied upon held that banks appointed by the Reserve Bank of India as its agents for collection of taxes and payment of pension are covered by the exemption, and that such commission is not liable to service tax. The settled view was followed in later decisions, and no reason was found to depart from it.

Conclusion: The commission earned by the appellant as an agent of the Reserve Bank of India was not liable to service tax under Notification No. 22/2006-ST, and the demand of tax, interest and penalties could not be sustained.

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