Case Note & Summary
The petitioner, a Regional Rural Bank established under the Regional Rural Banks Act, 1976, challenged four show cause notices dated 27-12-2023 and 28-12-2023 issued by the Commercial Tax Department and two notifications extending time limits under Section 168A of the CGST Act. The bank had been inspected on 17-06-2022 under Section 67 of the CGST Act, and subsequent proceedings alleged failure to pay GST under reverse charge on commission paid to pigmy agents in urban branches for financial years 2018-19, 2019-20, and 2021-22. The bank replied that pigmy agents were employees and not liable to GST. The respondents contended that pigmy agents were paid commission and not salary, making the bank liable under Section 9(3) of the CGST Act, and that an alternative remedy under Section 107 existed. The court framed the issue of whether the bank was liable to discharge GST on services by pigmy agents. The court considered the Supreme Court decision in Indian Banks Association v. Workmen of Syndicate Bank, holding that deposit collectors are workmen under the Industrial Disputes Act and commission is wages, reinforcing an employer-employee relationship. The court was analyzing the applicability of GST exemption under Section 7(2)(a) read with Schedule III when the judgment text ends abruptly, leaving the final outcome unstated.
Headnote
A) Industrial Law - Employment Status - Deposit collectors as workmen under Industrial Disputes Act, 1947 - Commission paid to pigmy agents treated as wages - Supreme Court in Indian Banks Association v. Workmen of Syndicate Bank (2001) held such agents are workmen subject to control of bank; commission is wage under Section 2(rr). (Paras 7)
B) Taxation - GST - Services by employee to employer exempt from GST - Section 7(2)(a) CGST Act 2017 r/w SL.No.1 of Schedule III - Services provided by pigmy agents to bank, if established as employees, would be exempt from GST. (Paras 8)
Issue of Consideration
Whether the petitioner is liable to discharge Goods and Services Tax, on the services rendered and commission paid to the pigmy agents?
Law Points
- Pigmy agents are workmen under Industrial Disputes Act
- 1947
- Commission paid to pigmy agents constitutes wages under Section 2(rr) of Industrial Disputes Act
- Services by employee to employer exempt under Section 7(2)(a) of CGST Act read with SL.No.1 of Schedule III
- Mere lack of fixed working hours does not negate employer-employee relationship
- Tax deducted at source on payments indicates salary treatment
Case Details
2026 LawText (KAR) (04) 22
Writ Petition No.100806 of 2024 (T - RES)
Sri V. Raghuraman (Senior Advocate for petitioner), Sri G.M. Gangadhar (AAG for respondents 1,2,4), Sri M.B. Kanavi (Advocate for respondent 3)
M/s. Karnataka Vikas Grameena Bank (Represented by Ramachandra Kamble)
1. Deputy Commissioner of Commercial Taxes (Enforcement-2), Hubballi; 2. Assistant Commissioner of Commercial Taxes (Audit-1), Hubballi; 3. Union of India; 4. State of Karnataka
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Nature of Litigation
Writ petition under Articles 226 and 227 challenging show cause notices and notifications under GST laws alleging levy of GST on commission paid to pigmy agents.
Remedy Sought
Petitioner/Bank seeks quashing of show cause notices dated 27-12-2023 and 28-12-2023 issued by respondents 1 and 2, and declaration that notifications No.9/2023-CT dated 31-03-2023 and No.06/2023 dated 06-04-2023 are ultra vires Section 168A of CGST/KGST Acts.
Filing Reason
Inspection conducted on 17-06-2022 led to issuance of DRC-01A and show cause notices alleging non-payment of GST under reverse charge on commission paid to pigmy agents; Bank contends such agents are employees and services exempt.
Previous Decisions
Prior to writ petition, the Bank replied to intimation in Form DRC-01A, but respondents found reply unsatisfactory and issued show cause notices. No prior adjudication order. Supreme Court decision in Indian Banks Association v. Workmen of Syndicate Bank held deposit collectors are workmen.
Issues
Whether pigmy agents are employees of the Bank thereby exempting their services from GST under Section 7(2)(a) read with Schedule III of CGST Act
Whether the show cause notices suffer from lack of jurisdiction due to exemption
Whether notifications extending time limit under Section 168A are ultra vires
Submissions/Arguments
Petitioner: pigmy agents are employees, commission is salary/wages, TDS deducted, not business facilitators, exempt under CGST; notification extending time is ultra vires Section 168A.
Respondent: alternative remedy under Section 107; pigmy agents paid commission not salary, liable under Section 9(3); no employer-employee proof; time extension valid.
Judgment Excerpts
The question as to the true nature of engagement of deposit collectors/pigmy agents, whether they are workmen within the meaning of the Industrial Disputes Act, 1947 or independent agents, has not remained in the realm of ambiguity.
The Apex Court holds that the commission earned by deposit collectors/pigmy agents partakes the character of ‘wages’ under Section 2(rr) of the Industrial Disputes Act, 1947.
Procedural History
Inspection on 17-06-2022 under Section 67 CGST Act; Notification extending time limit issued on 31-03-2023 and 06-04-2023; Report on 20-07-2023; DRC-01A issued on 09-08-2023; Bank replied; Show cause notices issued on 27-12-2023 and 28-12-2023; Writ petition filed challenging notices and notifications.
Acts & Sections
- Central Goods and Services Tax Act, 2017: 7(2)(a), 9(3), 67, 73, 73(9), 73(10), 168A, 107
- Karnataka Goods and Services Tax Act, 2017: 168A
- Industrial Disputes Act, 1947: 2(rr)
