2023 (10) TMI 745 - AT - Service Tax

SC Confirms RBI Agents' Service Tax Exemption on Government Commissions Under Section 65(7) of Finance Act, 1994

The SC upheld the Tribunal's decision, affirming that the appellant, acting as an agent of the RBI, is exempt from service tax on commissions earned from ... Non-payment of service tax - commission amount received from RBI for doing government related business transaction - HELD THAT:- The issue involved in the present case is squarely covered by the Larger Bench of the Tribunal in the case of CCE & S.T. CHANDIGARH VERSUS STATE BANK OF PATIALA [2016 (10) TMI 800 - CESTAT NEW DELHI] wherein the Larger Bench of the Tribunal has observed once State Bank of Patiala has been appointed as agent of RBI, it is transacting Government business which is in the nature of a sovereign function performed on behalf of the Government and hence not liable to Service Tax. The impugned order is not sustainable - Appeal allowed. Issues Involved:- Service tax liability on commission earned from government business transactions- Applicability of exemptions u/s Notification No. 22/2006-S.T.- Interpretation of Section 65(7) of the Finance Act, 1994Service Tax Liability on Commission Earned:The appeal challenged an order modifying the original authority's decision regarding the appellant's service tax liability on commission earned from government business transactions. The appellant had received a commission of Rs. 2,14,42,553/- during a specific period but had not discharged the service tax liability on this amount. A show cause notice was issued demanding service tax of Rs. 25,07,538/-, along with interest and penalties. The appellant contended that the impugned order did not properly appreciate the facts and law. The issue was deemed settled by a Larger Bench decision of the Tribunal and affirmed by the Supreme Court.Applicability of Exemptions u/s Notification No. 22/2006-S.T.:The Tribunal referred to the Larger Bench decision which observed that the RBI, under the direction of the Central Government, appoints national banks as its agents for various transactions. The Tribunal noted that as the appellant was an agent of RBI, the exemption granted to RBI from service tax should extend to the appellant as well. The Tribunal highlighted the definition of 'assessee' in Section 65(7) of the Finance Act, acknowledging that the person liable to pay service tax includes its agent. The Tribunal concluded that if RBI is exempted from service tax liability, its appointed agents should also benefit from the exemption.Interpretation of Section 65(7) of the Finance Act, 1994:The Hon'ble Supreme Court affirmed the Tribunal's findings regarding the activities of scheduled banks as statutory agents under Section 45 of the RBI Act, stating that these activities were not taxable based on the terms of the notification. The Court emphasized that the acts of the agent are attributable to the principal, as embodied in Section 65(7) of the Finance Act, 1994. Consequently, the Court dismissed the appeals, upholding the Tribunal's reasoning on the non-taxability of scheduled banks' activities as statutory agents of the RBI. The impugned order was set aside, allowing the appeal with consequential relief as per law.