2012 (6) TMI 274 - AT - Service Tax

Taxability of treasury services being provided by Bank where government does not have its own treasury and maintaining currency chests on behalf of Reserve Bank of India (RBI) - services of payment and receiving money on behalf of government in respect of various transactions - Revenue contended aforesaid services to be covered under definition of other financial services - Held 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. Therefore, we hold that the benefit of exemption available to RBI would be available to the agent i.e. Canara Bank. In view of the fact that appellant is held to be eligible for exemption as an agent of RBI, other issues are not considered at this stage. Limitation - Since question involves interpretation of law and facts in this case, therefore, we consider invocation of extended period is not called for. Penalty also set aside - Decided in favor of assessee.

Issues Involved:
1. Whether the services provided by the appellant are covered by the definition of taxable services.
2. Whether the appellant, as an agent of the Reserve Bank of India (RBI), is eligible for exemption from service tax.
3. Whether the services provided are statutory/sovereign functions of the Government and hence not liable to service tax.

Detailed Analysis:

I. The Services Are Not Covered by the Definition:
The appellant argued that the services provided are not covered by the definition of taxable services under Section 65(12) of the Finance Act, 1994. The definition includes various banking and financial services, such as financial leasing, merchant banking, asset management, advisory services, and operation of bank accounts. The department contended that the services provided by the appellant fall under "operation of bank accounts."

The appellant highlighted that the agreement with RBI specifies that Canara Bank does not maintain a balance for the Government but adjusts transactions by book transfers with RBI. This arrangement differs from typical bank account operations, where deposits and withdrawals are made directly from an account. The appellant argued that this unique arrangement does not constitute "operation of bank accounts" as defined under the Act.

The tribunal noted that while the agreement suggests a different arrangement, the exact nature of the transactions and whether they amount to the operation of bank accounts were not verified. However, since the tribunal found merit in the appellant's claim for exemption, it deemed it unnecessary to conclusively determine whether the services fall under the definition of taxable services.

II. Eligibility for Exemption as an Agent of RBI:
The appellant claimed exemption from service tax under Notification No. 22/2006 dated 13/4/2006, which exempts services provided to RBI. The appellant argued that as an agent of RBI, performing functions on behalf of RBI, it should be entitled to the same exemption.

The tribunal referred to the RBI Act, 1934, particularly Sections 21, 21A, and 45, which allow RBI to appoint agents to perform its functions. The tribunal agreed with the appellant, citing the Supreme Court's decision in State of Madras Vs. Cement Allocation Co-ordinating Organisation, which held that an agent is entitled to the same exemptions as the principal. Therefore, the tribunal concluded that the appellant, as an agent of RBI, is eligible for the exemption provided to RBI.

III. Services as Statutory/Sovereign Functions:
The appellant argued that the services provided are statutory/sovereign functions and thus not liable to service tax. The tribunal considered the Board's Circular No. 96/7/2007 ST dated 23.8.2007, which clarifies that services provided by a sovereign/public authority are not taxable if they are statutory activities performed for a statutory fee.

The tribunal referred to previous decisions, such as UTI Technology Services Vs. CST Mumbai and Janata Sahakari Bank Ltd. Vs. CCE Pune-II, where services performed on behalf of the Government were considered statutory/sovereign functions and exempt from service tax. However, the tribunal noted that a detailed examination of each service provided by the appellant is required to determine if they are statutory/sovereign functions. Since the appellant was already found eligible for exemption as an agent of RBI, the tribunal did not further explore this issue.

Conclusion:
The tribunal held that the appellant is eligible for exemption from service tax as an agent of RBI. Consequently, the extended period for demand and penalties were not applicable. The appeal was allowed with consequential relief to the appellant.

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