Bengaluru: Pigmy agents employed by regional rural banks are not intermediaries appointed under the Reserve Bank of India-sanctioned model and hence cannot be called business facilitators, the Karnataka high court has ruled.“Their role is confined to the collection of deposits under the bank’s pigmy deposit scheme, and they do not undertake activities envisaged under the business facilitator or correspondent models. The attempt to artificially transpose pigmy agents into the category of business facilitators is, therefore, fundamentally flawed. It is a mischaracterisation that cannot withstand judicial scrutiny,” Justice M Nagaprasanna pointed out in his recent order while allowing a petition filed by the Karnataka Vikas Grameen Bank, Belagavi.The petitioner challenged the various show-cause notices/notices issued by the GST authorities to verify the tax compliance by the bank. The GST authorities issued notices seeking the payment of tax on commission amounts paid to the pigmy agents in urban branches.Challenging the same, the bank argued that the pigmy agents are basically its employees and not business facilitators as contended by the GST authorities.Justice Nagaprasanna noted that the agreement governing the engagement of the pigmy agents reveals several telling features.The bank exercises pervasive control over their functioning, and the agents are required to maintain security deposits. They are assured minimum remuneration; they are entitled to benefits such as gratuity, and their disengagement is regulated by notice requirements. These are not indications of an independent contractor but hallmarks of employment, the judge pointed out.Such services, being in the course of employment, are insulated from the levy of GST, the judge added.“The show-cause notices issued by the respondent proceed on an erroneous premise, making an attempt to describe the pigmy agents as business facilitators. The foundation of the show-cause notice is itself infirm; the superstructure in the form of the show-cause notice, built upon it, would tumble down,” Justice Nagaprasanna observed while quashing the show-cause notices/notices issued to the bank.
