Agency Commission received by Canara Bank for RBI not subject to Service Tax: CESTAT [Read Order]

The Bangalore bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the agency commission received by the Canara Bank on behalf of the Reserve Bank of India (RBI) cannot be subject to Service Tax.

In the instant case, the department demanded Service Tax from the appellants, M/s Canara Bank by holding that they were acting as the agents for the Reserve Bank of India and were receiving agency commission at the rates notified by RBI, on per transaction basis, in respect of receipts or payments made, on behalf of the Government of India. It was alleged that the services provided by the appellant to the RBI amounted to providing a taxable service under the Banking and other Financial Services which was taxable from 10.09.2004.

On appeal, the Bank contended that such cannot be classified as “operation of bank accounts” under the category of “Banking and Other Financial Services”. According to them, there is no customer/client relationship between the bank and the Government and the services rendered by the bank are statutory function carried out on behalf of the Government therefore not liable to Service Tax.

The Tribunal bench relied on the Notification No.22/2006-ST dated 31.5.2006 and held that the exemption given under the said Notification is applicable to RBI.

“In terms of Section 65(7) of the Finance Act, 1994, “Assessee means a person liable to pay the service tax and includes his agent” as this was also held by the Larger Bench. We find that under Section 45 of the RBI Act, it provides that RBI can nominate other banks as its agent at all places or at any place in India for such purpose as the Bank may specify. Therefore, reading the Notification and Section 65(7) of Finance Act, 1994 and the powers vested with RBI to appoint their agents, we have no hesitation in concluding that the exemption available to RBI in discharge of its functions should be available to the appellant working as the Agents of RBI in terms of the Agreement,” the Tribunal said.