Exemption for statutory agency services to the Reserve Bank of India defeats service tax on bank treasury commission.

Services performed by scheduled banks as statutory agents of the Reserve Bank of India for treasury functions were treated as attributable to the Reserve Bank of India, and the commission earned for those activities was held covered by the exemption notification under the Finance Act, 1994. On that basis, the service tax demand could not be sustained, as the relevant services were provided to or by the Reserve Bank of India within the exemption framework. The impugned order was set aside and relief followed for the assessee.

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Issues: Whether the commission received by scheduled banks for treasury activities performed on behalf of the Reserve Bank of India was liable to service tax, or whether such activities were covered by the exemption notification applicable to services provided to or by the Reserve Bank of India.

Analysis: The Tribunal treated the controversy as covered by the earlier decision on identical activities performed by scheduled banks as statutory agents of the Reserve Bank of India. It noted that the Reserve Bank of India is empowered to appoint agents for governmental and banking functions, and that services rendered by a scheduled bank in that capacity are attributable to the principal. The Tribunal also relied on the Supreme Court's affirmation of the same principle and on the exemption notification issued under the Finance Act, 1994, which exempted taxable services provided to or by the Reserve Bank of India. On that footing, the commission earned for such statutory agency functions could not be sustained as taxable service income.

Conclusion: The demand of service tax was not sustainable and the appeal succeeded in favour of the assessee.

Final Conclusion: The impugned order was set aside and the assessee was granted the relief flowing from the holding that treasury services undertaken as statutory agency functions for the Reserve Bank of India were outside the service tax levy under the applicable exemption framework.

Ratio Decidendi: Services performed by scheduled banks as statutory agents of the Reserve Bank of India, and the commission received for such agency functions, are attributable to the Reserve Bank of India and are covered by the exemption notification issued under the Finance Act, 1994.

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