RBI agency commission exemption protects banks from service tax on Government business services and related penalties.

Banks acting as agents of the Reserve Bank of India for Government business are covered by Notification No. 22/2006-ST, because the exempted taxable services are those provided to the Reserve Bank of India where tax is payable by it under the service tax rules. On that settled interpretation, commission earned for such agency services is not liable to service tax. As a result, the related demand, interest and penalties cannot be sustained.

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Issues: Whether commission received by banks for carrying out Government business as agents of the Reserve Bank of India was liable to service tax, and whether the resulting demand, interest and penalties could be sustained.

Analysis: Notification No. 22/2006-ST exempts taxable services provided or to be provided by any person to the Reserve Bank of India where the tax is liable to be paid 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. The earlier larger bench decision had held that banks appointed by the Reserve Bank of India as its agents for Government business are entitled to the benefit of the notification and that such services are not liable to service tax. The decision was treated as the settled legal position and was followed in later cases.

Conclusion: The commission earned for agency services to the Reserve Bank of India was not liable to service tax, and the demand, interest and penalties could not survive.

Final Conclusion: The appeal succeeded and the impugned order was set aside.

Ratio Decidendi: Where banks act as agents of the Reserve Bank of India for Government business, the exemption under Notification No. 22/2006-ST extends to such services and they are not chargeable to service tax.

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