2014 (9) TMI 783 - AT - Service Tax

Refund of service tax - Banking or Financial Service - primary authority rejected the claims for refund on the ground that provisions of Notification No. 22/2006-ST were inapplicable as also on the ground that the some claims were barred by limitation - claim of the assessee based on Notification 22/2006-ST was accepted by the appellate Commissioner - Held that - The power of the appropriate legislature to levy tax is subject to limitations specified in the Constitution of India. There is nothing in the Constitution which engrafts a limitation on powers of an appropriate legislature to levy a tax on rendition of sovereign service. Service provided by RBI or the assessee under authorisation of the RBI does not also fall within the ambit of Articles 285 and 289 of the Constitution. The power to grant exemption from the liability to tax is conferred on the Central Government under Section 93 of the Act in plenitudinous terms. Such exemption may be granted either in a specific case or in respect of a generality of cases, with or without conditions. In the exercise of such broadly conferred power, the Central Government issued Notification No. 22/2006-ST, clearly enumerating the transactions, the taxable services and the provider or recipient of services, in expressly specified circumstances, which alone are notified to be eligible to the immunity to tax. It is a settled principle and one that is too well established, that exemption Notifications are to be strictly and rigorously construed. We also prima facie discern no ambiguity in the taxable services and circumstances of such rendition/receipt which are spelt out in Notification No. 22/2006-ST. - the generic principles of agency cannot be canvassed to expand the scope of exemption to the assessee, since the exemption Notification clearly limits the grant of immunity only to taxable services provided by or to the RBI and in enumerated circumstances. - grant of refund stayed.

Summary

Issues:
1. Interpretation of Notification No. 22/2006-ST for exemption of service tax.
2. Applicability of exemption to a banking company acting as an agent of the Reserve Bank of India.
3. Legal basis for claiming immunity from tax based on sovereign functions.
4. Scope of exemption under Section 93 of the Finance Act, 1994.

Analysis:

1. The appeal involved a dispute regarding the interpretation of Notification No. 22/2006-ST issued by the Government of India under Section 93 of the Finance Act, 1994. The notification exempted certain taxable services from service tax liability under specific circumstances.

2. The petitioner, a banking company registered under the Companies Act, 1956, and authorized by the Reserve Bank of India (RBI) to receive tax remittances, claimed a refund of service tax paid based on the notification. The primary authority rejected the refund claims, leading to an appeal by the petitioner.

3. The petitioner argued that as an agent of the RBI, executing sovereign functions under RBI's authorization, it should be immune to tax liability. However, the tribunal found no legal basis for this contention, emphasizing that the power to levy tax is subject to constitutional limitations and does not inherently exempt sovereign services from taxation.

4. The tribunal analyzed the scope of exemption under Section 93 of the Act, highlighting the need for strict interpretation of exemption notifications. It noted that the exemption under Notification No. 22/2006-ST specifically applies to taxable services provided by or to the RBI in defined circumstances, subject to the reverse charge mechanism.

5. Despite arguments by the petitioner's consultant citing precedents like the Canara Bank case, the tribunal held that the exemption only extends to services directly involving the RBI and does not automatically cover agents or entities acting on behalf of the RBI.

6. Ultimately, the tribunal granted a stay on the operation of the impugned order, pending the appeal's disposal, based on the prima facie analysis that the petitioner's claims did not align with the strict interpretation of the exemption notification's provisions.

This comprehensive analysis of the judgment delves into the legal intricacies surrounding the interpretation of tax exemptions and the application of sovereign functions in the context of service tax liability, providing a detailed overview of the tribunal's decision on each issue raised in the appeal.