The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that M/s Punjab National Bank (PNB), acting as an agent of the Reserve Bank of India (RBI) for discharging sovereign functions, is not liable to pay service tax.
The Tribunal examined a claim for service tax amounting to ₹1,53,75,352/- with interest and equal penalty imposed by the Commissioner. The main question is whether the amount paid to the appellant by the Reserve Bank of India (RBI) for government projects falls under taxable services according to the “Business Auxiliary Service” section.
The Tribunal found that the services provided by the appellant to the RBI had been exempted from service tax as per Notification No. 22/2006-ST dated 13.04.2006. The previous judgments were referred to by the Tribunal, including the Larger Bench decision in CCE & S.T Chandigarh vs. State Bank of Patiala, where it was held that banks appointed by RBI as agents to perform sovereign functions are not liable for service tax.
The bench further reiterated that since such services rendered to RBI were free from service tax, its agents like the appellant should also enjoy this immunity. This position was made even more apparent through various cases such as Syndicate Bank vs. Commissioner of Central Excise and Service Tax and State Bank of Hyderabad vs CCT.
it was noted that the notice to show cause issued was defective as it did not specify the particular sub-clause under Section 65(19) of the Finance Act, 1994 defining “Business Auxiliary Services”.
The Tribunal further observed that the extended period for demanding service tax was improperly invoked in the present case because the appellant had recorded all transactions and there were no dishonest actions made.
The bench found the impugned order unsustainable and allowed the appeal, setting aside the demand for service tax and penalties.
FACTS
Chandigarh’s Commissioner of Central Excise and Service Tax was appealed against by M/s Punjab National Bank (PNB) who confirmed a service tax pay of ₹1,53,75,352/- plus interest and the same amount as penalty.
The case details the bailiff role of PNB in transferring public funds on behalf of RBI. In particular, it served as a link branch for government transactions in Punjab, Haryana, and Himachal Pradesh, coherent daily summaries from its branches were sent to RBI for remission to them. The return for these kinds of renderings was commission payments from RBI.
During the time frame that spanned from 01.10.2006 to 30.09.2011, PNB made a total commission sum of ₹13,80,13,654/-, whereby it retained around 25% while giving out the other proportion to its branches. In response to this, the service tax department issued a notice asking why he should not be charged with such tax under “Business Auxiliary Service” because the commission obtained was subject to service tax.
On its part, PNB argued that their services were exempt under Notification No. 22/2006-ST since they acted on behalf of RBI which enjoyed such exemptions when involved in similar endeavors like those aforementioned above.
Case Details
M/s Punjab National Bank vs. Commissioner of Service Tax, Chandigarh
Service Tax Appeal No.: 55596 of 2014
Court: Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh
Judges: Mr. S. S. Garg (Member – Judicial) and Mr. P. Anjani Kumar (Member – Technical)
