Agency principles under service tax law extended RBI exemption to scheduled banks acting as statutory agents for the RBI.

Scheduled banks acting as statutory agents of the Reserve Bank of India were entitled to service-tax exemption on commission received for services performed on the RBI's behalf. The exemption notification under section 93 of the Finance Act, 1994 covered taxable services provided to the RBI, and the banks' activities under section 45 of the Reserve Bank of India Act, 1934 were attributable to the principal under agency principles reflected in section 65(7) of the Finance Act, 1994. As the services were rendered in the banks' capacity as statutory agents, the service-tax demand could not be sustained and the exemption applied.

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Issues: Whether scheduled banks, when acting as statutory agents of the Reserve Bank of India, were entitled to exemption from service tax on commission received for such activities under the relevant exemption notification.

Analysis: The exemption notification issued under section 93 of the Finance Act, 1994 exempted taxable services provided to the Reserve Bank of India and services received in India from outside India by the Reserve Bank of India. The commission earned by scheduled banks arose from activities performed as statutory agents under section 45 of the Reserve Bank of India Act, 1934, and from other statutory functions carried out on behalf of the Reserve Bank of India. The principle that acts of an agent are attributable to the principal was treated as applicable, and the same understanding was reflected in section 65(7) of the Finance Act, 1994.

Conclusion: The services rendered by scheduled banks in their capacity as statutory agents of the Reserve Bank of India were not liable to service tax, and the exemption applied in their favour.

Final Conclusion: The revenue appeals failed because the impugned service-tax demand could not be sustained against the scheduled banks for the activities performed as statutory agents of the Reserve Bank of India.

Ratio Decidendi: Where a bank performs services as a statutory agent of the Reserve Bank of India, the agent's acts are attributable to the principal and the resulting services fall within the exemption available to the Reserve Bank of India under the notification.

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