CESTAT Quashes Service Tax Demand on Gold Coin Sales Activity

The dispute arose when the bank challenged a service tax demand raised by the department, which treated its gold coin business as a taxable service. The department’s case was that the bank was effectively acting as a clearing and forwarding agent for a foreign supplier while importing and selling gold coins in India.

The bank, however, maintained that its role was not that of an agent providing services. It explained that, in line with RBI guidelines and the agreement terms, it was purchasing gold outright from the supplier and then selling it to customers on its own account. According to the bank, the earnings were simply a trading margin from sale of goods—not a commission for any service rendered.

Issue Raised: Whether profit margin from gold sales can be taxed as service consideration.

Tribunal’s Ruling: The Customs, Excise & Service Tax Appellate Tribunal, (CESTAT) ruled in favour of the bank and seet aside the tax demand. It observed that the arrangement clearly reflected a principal-to-principal transaction, where the bank was buying and selling gold rather than acting on behalf of the supplier.

The Tribunal made it clear that since no service was being provided to the supplier, the margin earned by the bank could not be treated as consideration for a taxable service. It further noted that even under the post-2012 tax regime, the essential nature of the transaction remained a sale of goods. On this reasoning, the entire demand was held unsustainable and was quashed.

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