2017 (12) TMI 18 - AT - Service Tax

Levy of tax - brokerage received from the Reserve Bank of India for the sale of Government bonds for the period July 2001 to June 2003 - whether taxable under the category of Banking and Other Financial Services? - Held that - It is not disputed that the appellants have been acting as an agent of the Reserve Bank of India while selling such Government bonds - similar issue decided in the case of Enam Securities Pvt. Ltd. Vs Commissioner of Service Tax Mumbai 2014 (11) TMI 585 - CESTAT MUMBAI where it was held that the lending or borrowing of money by the Government is a sovereign function and on such functions there cannot be any tax liability whether by way of direct tax or by way of indirect tax - demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellants are liable to pay service tax on the brokerage received for the sale of Government bonds.

Analysis:
The case involved the appellants receiving brokerage from the Reserve Bank of India for selling Government bonds. The department alleged that the brokerage amount was subject to service tax under Banking and Other Financial Services category. The original authority confirmed the demand, interest, and penalty. In appeal, the Commissioner (Appeals) upheld the decision, leading to the current appeal.

The appellant's representative argued that previous judgments, such as Commissioner of Central Excise & Service Tax, Chandigarh-ll Vs State Bank of Patiala, supported their position. They referenced Notification No. 22/2006-ST and cases like Canara Bank Vs Commissioner of Service Tax, Bangalore, HDFC Bank Ltd. Vs Commissioner of Service Tax, Mumbai, and Enam Securities Pvt. Ltd. Vs Commissioner of Service Tax, Mumbai, which held that activities on behalf of RBI were sovereign functions not subject to service tax.

The Tribunal examined whether the appellants were liable to pay service tax on the brokerage received for Government bond sales. It was undisputed that the appellants acted as agents of the Reserve Bank of India in these transactions. Previous cases like Canara Bank, HDFC Bank Ltd., and Enam Securities Pvt. Ltd. were considered. The Tribunal cited precedents and clarifications to support its decision.

In its analysis, the Tribunal referenced specific notifications, circulars, and legal principles to conclude that the demand for service tax was unsustainable. Citing the sovereign function nature of the transactions and previous judgments, the Tribunal set aside the impugned order, allowing the appeal with any consequential relief.

Overall, the judgment delved into the nature of the transactions, legal precedents, and relevant notifications to determine the appellants' liability for service tax on brokerage from Government bond sales. The decision was based on established legal principles and interpretations of previous cases involving similar issues.