Service tax exemption for agency banks performing RBI-linked government transactions; commission held outside tax net.

Commission earned by an agency bank for carrying out government treasury and other RBI-linked transactions was treated as exempt from service tax because the bank acted as an appointed agent of the Reserve Bank of India for government business. The analysis relied on Notification No. 22/2006-ST and the statutory scheme under Section 45 of the Reserve Bank of India Act, 1934, which recognises agency banks for transacting RBI business. Applying prior Tribunal reasoning, the activity was regarded as discharge of sovereign or statutory functions, and the principal's exemption was held to extend to the agent performing the same exempt function. The service tax demand, along with interest and penalty, was therefore not sustainable.

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Issues: Whether the commission received by the bank for carrying out government treasury and other RBI-linked transactions as an appointed agent of the Reserve Bank of India was liable to service tax, or was exempt as activity performed in discharge of sovereign or statutory functions.

Analysis: The service rendered was held to be covered by the exemption granted under Notification No. 22/2006-ST, as the bank functioned as an agent of the Reserve Bank of India for government business. The statutory framework under Section 45 of the Reserve Bank of India Act, 1934 recognises appointment of agency banks for transacting RBI business, and the reasoning adopted from prior Tribunal decisions treated such activity as discharge of sovereign or statutory functions. The definition of assessee in Section 65(7) of the Finance Act, 1994 also supported the view that the principal's exemption extends to its agent where the agent is carrying out the same exempt function.

Conclusion: The commission received for such transactions was not liable to service tax, and the demand, interest, and penalty could not be sustained.

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