Bank wins appeal on service tax exemption for RBI agent services under notification 22/2006-ST

The CESTAT Chandigarh allowed the appeal of an authorized branch of a nationalized bank providing central and state government transaction services. The tribunal held that services rendered to RBI were exempt from service tax under notification 22/2006-ST dated 13.04.2006. Following the larger bench precedent, the tribunal determined that when appointed as RBI agent, the bank was conducting government business constituting sovereign functions performed on behalf of the government, making such services non-taxable under service tax provisions.

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Issues:
Appeal against demand of service tax, penalty, and interest confirmed by Commissioner of Central Excise and Service Tax Commissionerate, Chandigarh.

Analysis:
The appellant, a Nationalized Bank, was registered with the Service Tax department for providing taxable services in Banking and Financial Services, Transportation of goods by road, and Renting of immovable property. The RBI, through its public Accounts Departments and branches of other Agency Banks, carries out Govt. transactions for the Central and State Government. The Appellant, as an Authorized Branch of Punjab National Bank, carries out Central & State government transactions for Punjab, Haryana & Himachal Pradesh. The Appellant acted as a link branch for PNB, handling daily transaction summaries and transferring commission earned from RBI to branches. The dispute arose from the demand of service tax for the period 01.10.2006 to 30.09.2011, where the Appellant retained a portion of the commission received from RBI for government transactions. The impugned order confirmed the demand, leading to the present appeal.

The appellant argued that services provided for Discharge of Sovereign or Statutory functions of the State are outside the purview of Service Tax, citing RBI's delegation of work to agency banks like the appellant. They claimed exemption from service tax under notification No. 22/2006-ST, supported by judicial precedents favoring banks acting as agents of RBI. The appellant challenged the defective show cause notice and the invocation of the extended period, asserting no suppression of facts. The Ld. AR supported the findings of the impugned order.

The Tribunal found that services rendered by the appellant to RBI are exempt from service tax under notification No. 22/2006-ST. Referring to the settled issue in the case of CCE & S.T. Chandigarh Vs. State Bank of Patiala, the Tribunal held that the exemption granted to RBI extends to its agents like the appellant. The Tribunal highlighted the statutory functions performed by banks appointed as agents of RBI, making them not liable to Service Tax. Relying on precedents like Canara Bank, the Tribunal dismissed the appeal, upholding the exemption for the appellant. Additionally, the Tribunal cited the Syndicate Bank case, reinforcing the exemption available to agents working on behalf of RBI in the discharge of sovereign functions.

In conclusion, the Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal with consequential relief, if any, as per law.

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