2014 (8) TMI 985 - AT - Service Tax

Denial of benefit of exemption - Banking or other Financial services - Held that - since it is settled law that an exemption Notification must be strictly and narrowly construed treating a bank authorised by the RBI (to transact Government business) as the agent of the RBI and thus entitled to exemptions clearly confined to the RBI (under Notification No. 22/2006-S.T.) is an interpretation that warrants deeper analysis and possible reconsideration. - Matter places before President for appropriate administrative orders as to constitution of a Larger Bench for consideration of following question - Whether qua Notification No. 22/2006-S.T. dated 31-5-2006 the commission received from the Reserve Bank of India by a scheduled bank (entrusted with functions of transaction of Govt. business) for rendition of Banking or Financial service is entitled to exemption from Service Tax on the ground that the banking company providing such taxable service is an agent of the Reserve Bank of India and thus entitled to exemptions specified in clause (i) of Notification No. 22/2006-S.T. dated 31-3-2006.

Summary

Issues: Interpretation of Notification No. 22/2006-S.T. for exemption of service tax on banking services provided by a scheduled bank acting as an agent of the Reserve Bank of India.

In this judgment by the Appellate Tribunal CESTAT New Delhi, the Division Bench interpreted Notification No. 22/2006-S.T., which exempts certain taxable services from service tax. The Tribunal noted a previous decision where it was held that a bank acting as an agent of the Reserve Bank of India is entitled to the same exemptions as the Reserve Bank under this notification. However, the Tribunal expressed the view that such an interpretation may need further analysis due to the principle that exemption notifications must be strictly construed. The Tribunal decided to refer the issue to a Larger Bench for consideration, specifically questioning whether a scheduled bank, receiving a commission from the Reserve Bank for providing banking services related to government business, is entitled to service tax exemption as an agent of the Reserve Bank under Notification No. 22/2006-S.T. The Registry was directed to place the matter before the Hon'ble President for necessary administrative actions.