Bank Pigmy agents are employees, exempting their services from GST under Schedule III.

The petitioner, a Regional Rural Bank, challenged four Show Cause Notices (SCNs) issued in December 2023

These notices sought to levy Goods and Services Tax (GST) on commissions paid to "pigmy agents" (deposit collectors) for the financial years 2018-19, 2019-20, and 2021-22

The Revenue Department conducted an inspection under Section 67 of the CGST Act and alleged that pigmy agents act as "business facilitators," making the bank liable to pay GST under the Reverse Charge Mechanism (RCM)

The petitioner contended that pigmy agents are "employees" and their services are exempt from GST under Schedule III of the CGST Act

The court primarily applied Section 7(2)(a) read with Entry 1 of Schedule III of the CGST Act, 2017, which stipulates that services by an employee to the employer in the course of employment are treated neither as a supply of goods nor services

It relied on the precedent Indian Bank’s Association v. Workmen of Syndicate Bank (2001) 3 SCC 36, which established that deposit collectors are "workmen" and their commission constitutes "wages" under the Industrial Disputes Act

Furthermore, the court applied the "control and supervision" test from Dharangadhara Chemical Works Ltd. v. State of Saurashtra [para 10.1] and the "economic reality/integration" tests from Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. to determine the existence of a master-servant relationship

It also examined Notification No. 13/2017-Central Tax (Rate) regarding "business facilitators"

The court analyzed the nature of engagement of pigmy agents by examining the Memorandum of Agreement, which revealed the bank’s pervasive control, requirement of security deposits, and provision of benefits like gratuity

Applying the tests from Indian Bank’s Association, the court determined that pigmy agents are not detached contractors but operate under a master-servant nexus, where their remuneration—though termed "commission"—is substantively "wages"

Regarding the Revenue's claim that agents are "business facilitators," the court noted that the RBI’s definition requires such facilitators to be intermediaries appointed under specific regulatory models for functions like loan processing

The court found that pigmy agents, whose role is confined to daily deposit collection, do not meet this definition and are instead integrated into the bank's core business as employees

Consequently, the court held that their services fall squarely within the exemption under Entry 1, Schedule III of the CGST Act, rendering them outside the taxable net

It held that pigmy agents are employees of the bank, and therefore, the services rendered by them in the course of employment are exempt from GST under Schedule III of the CGST/KGST Acts

The court declined to rule on the validity of notifications extending the time limit for SCNs, as the underlying tax demand itself was found unsustainable

The petitioner was granted all consequential benefits following the quashment