FULL TEXT OF THE CESTAT JUDGMENT
M/s. Canara Bank, the appellant, is a banking company and a body corporate, conducting their operations in India. It was alleged by the Department that the appellants 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. The Department issued four show-cause notices to the appellants, which were confirmed vide Order-in-Original No.ST/59/2009-Commr.LTU dated 30.6.2009; Order-in-Original No.92/2010-CE (Commr.) dated 30.11.2010; Order-in-Original No.67/2011-ST (Commr.) dated 19.7.2011; Order-in-Appeal No.74/2011-ST (Commr.) dated 4.8.2011; and Order-in-Original No.3/2012-ST (Commr.) dated 19.1.2012. It was contended by the Department that CBEC vide its circular No. 356/53/2007 TRU has clarified that service is leviable on the taxable services provided irrespective of status of the consumer of service. There is no exemption from taxes on the ground that the same is Government.
2. The appellants contended that the services covered by the show-cause notice cannot be classified as “operation of bank accounts” under the category of “Banking and Other Financial Services”. There is no customer/client relationship between the bank and the Government. The services rendered by the bank are statutory function carried out on behalf of the Government therefore not liable to Service Tax. The learned Commissioner failed to appreciate the fact that the services were exempted by Notification 6/2006- ST dated 01.03.2006. The learned counsel for the appellants has relied upon the case of Canara Bank – 2012 (28) STR 369 (Tri. Ahmedabad) and he further submitted that the issue is squarely settled by the Larger Bench. In the case of Canara Bank cited supra, they are entitled for relief by setting aside the impugned order.
3. The learned AR has relied upon the decision of the Hon’ble Supreme Court of India in Civil Appeal No.3327 of 2007 and submitted that the issue is relating to the interpretation of an exemption Notification and the same needs to be interpreted The burden of proving the applicability would be on the assessee to show that it comes within the parameters of the exemption clause or exemption Notification.
4. Heard both sides and perused the records of the case.
5. We find that the Tribunal in the case of Canara Bank cited supra has observed that in para 12 as under:
“12. From the above it can be seen that RBI have the right to transact Government business and allow an agent to perform its function. From the Agreement also it is quite clear that Canara Bank have been appointed as an agent. We find ourselves in agreement with the submissions made by ld. Chartered Accountant that the decision of Hon’ble Supreme Court on this issue would be applicable to the facts and circumstances of the case. The decision was rendered on this issue in the case of State of Madras v. Cement Allocation Coordinating Organization dated 1-9-1971.
“4. The charging Section under the Madras General Sales Tax Act, 1959 is Section 3. It brings to all taxable turnover of a dealer as defined in the Act. The expression “dealer” is defined in Section 2(g). Because of Section 2(g)(iii) a Commissioner agent is also considered as a „dealer‟ for the purpose of the Madras General Sales Tax Act, 1959. Hence the taxable turnover of a Commission agent is liable to be brought to tax. The only other provision that we need refer is Rule 6 of the Rules framed under the Act. That rule reads:
The tax or taxes under Section 3, 4 or 5 shall be levied on the taxable turnover of the dealer. In determining the taxable turnover, the amounts specified in the following clauses shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer.
(c) all amounts falling under the following two heads, when specified and charged for by the dealer separately, without including them in the price of the goods sold :
(i) freight; and
(ii) charges for packing, that is to say, cost of packing materials and cost of labour and other such like services.
5. The first question that we have to consider is whether an agent of a principal who is also a dealer under the Act is entitled to the same rights as his principal has under the Act. Under the general law the agent merely represents his principal. Therefore, while functioning within the scope of the agency he can exercise all the rights which his principal could have exercised. In fact, in the case of an ordinary agency, the agent merely acts for his principal. This provision must hold good even under the Madras General Sales Tax Act unless otherwise provided therein. The fact that for the purpose of that Act an agent is considered as a dealer does not alter the legal position in other respects. Excepting to the extent otherwise provided in the Madras General Sales Tax Act the agent must be held to represent his principal while dealing with the goods of his principal; he merely steps into the shoes of his principal. He is entitled to the same exemptions as his principal would have got had he dealt with the concerned goods himself. Agents are considered as dealers under the tax so as to effectively enforce the provisions of the Act. But that provision does not convert an agent into a principal for all purposes under the Act.”
5.1 We find that the Hon’ble Tribunal in para 12 has observed as under:
“13. The above observations of the Hon’ble Supreme Court make it clear that exemption to the principal would be available to the agent also. For this purpose, since the agent is eligible for the exemption which is available to the principal in terms of the relationship with the principal of the agent and not because of exemption granted specifically to the agent or principal, we have to hold that the appellant is eligible for exemption. If RBI were to undertake the activity there would have been no question of levy of service tax. It was also brought to our notice that RBI is not paying service tax. Same functions being carried out by RBI are exempted. Therefore, we hold that the benefit of exemption available to RBI would be available to the agent i.e. Canara Bank.”
5.2 We find that the issue is squarely covered by the above judgment. We further find that Larger Bench of CESTAT in the case of State Bank of Patiala: 2016 (45) STR 333 (Tri.-LB) has upheld the decision of the Tribunal. The Larger Bench observed that:
“7.5 In our view as the respondent-assessee is an agent of RBI, exemption granted by Notification No. 22/2006-S.T., needs to be extended to respondent. In our view the claim of the respondent from exemption of the service tax on the commission received for undertaking the activity of receiving various taxes on behalf of the Govt. of India, seems to be justified inasmuch as that the provisions of Section 45 of RBI Act categorically mandated for appointing national bank or a State Bank by the RBI for specified purposes as directed by Government; and the said Section also mandates that such Banks will be agents of RBI.
7.6 It can be seen from the above reproduced definition, the Finance Act itself acknowledges the fact that the person who is liable to pay service tax includes its agent which would mean in the case in hand that in the absence of Notification No. 22/2006- S.T., RBI would be liable to pay service tax as also banks which are appointed by RBI as agent under Section 45 of RBI Act. Applying the same analogy, in our view if RBI is exempted from the service tax liability in respect of various services, its agent for doing such services also needs to be extended the same benefit.”
5.3 We find that there is no ambiguity with reference to the Notification; therefore, the submission of the departmental representative for strict interpretation is not warranted. There is no doubt that the exemption is given vide Notification No.22/2006-ST dated 31.5.2006 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.
6. In view of the above, we allow the appeals.
(Order was pronounced in Open Court on 14.08.2018.)