2023 (5) TMI 137 - SCH - Service Tax

Scheduled Banks as Statutory Agents Exempt from Service Tax on Commissions

The Supreme Court held that scheduled Banks, acting as statutory agents of the Reserve Bank of India, are eligible for exemption from service tax on ... Exemption from payment of Service tax - commission received by the respondent-scheduled Banks in the Reserve Bank of India, for rendering banking or financial services - applicability of N/N 22/2006-ST dated 31.03.2006 - HELD THAT:- The tribunal referred the issue to a larger Bench in view of differing opinions rendered by various Benches. By the impugned orders, the Tribunal concluded that the services rendered by the Scheduled Banks as statutory agent under Section 45 of the Reserve Bank of India Act, 1934 and also the other activities of the Scheduled Banks involving statutory functions on behalf of the Reserve Bank of India, were not taxable with regard to the terms of the notification. The opinion of the findings of the CESTAT are in accordance with the judgment of this Court in STATE OF MADRAS VERSUS THE CEMENT ALLOCATION AND CO-ORDINATING ORGANISATION [1971 (9) TMI 161 - SUPREME COURT]. The Court had said on that occasion that the acts of the agent are also attributable to the principal. This principle is also embodied in Section 65 (7) of the Finance Act, 1994. This Court is of the opinion that the reasoning of the tribunal with respect to the activities of the scheduled Banks, so far as scheduled banks perform activities as statutory agent of the Reserve Bank of India under Section 45 of the Reserve Bank of India Act, 1934 are concerned do not call for any interference. The appeals are accordingly dismissed. Issues:1. Eligibility of scheduled Banks for exemption from service tax on commission received from the Reserve Bank of India. Analysis:The Supreme Court addressed the issue of whether scheduled Banks are eligible for exemption from service tax on the commission received from the Reserve Bank of India. The primary question was whether the commission received by the Banks for rendering banking or financial services could be exempted under notification 22/2006-ST dated 31.03.2006. The revenue contended that the services provided by the Banks were not covered by the notification as it exempted only services provided by the Reserve Bank of India. The Tribunal referred the matter to a larger Bench due to conflicting opinions. The Tribunal concluded that the services rendered by the Banks as statutory agents under Section 45 of the Reserve Bank of India Act, 1934, and other activities involving statutory functions on behalf of the Reserve Bank of India, were not taxable based on the terms of the notification.The Supreme Court, relying on the judgment in State of Madras vs. Cement Allocation Coordinating Organisations, 1971 (2) SCC 587, emphasized that the acts of an agent are attributable to the principal, a principle also enshrined in Section 65(7) of the Finance Act, 1994. The Court found that the activities of the scheduled Banks acting as statutory agents of the Reserve Bank of India under Section 45 of the Reserve Bank of India Act, 1934, did not warrant interference. Consequently, the Court dismissed the appeals, upholding the Tribunal's findings regarding the exemption from service tax for the Banks in their role as statutory agents.In conclusion, the Supreme Court clarified that scheduled Banks, when acting as statutory agents of the Reserve Bank of India, are eligible for exemption from service tax on the commission received for providing banking or financial services. The Court's decision was based on the principle that the actions of an agent are imputed to the principal, as established in relevant legal provisions and prior judicial precedents. The judgment reaffirmed the Tribunal's ruling on the tax exemption for scheduled Banks in their capacity as statutory agents, thereby resolving the issue raised in the appeals.