Pigmy Agents Are Bank Employees, No GST Payable on Commission: Karnataka High Court

The Karnataka High Court has held that commission paid to pigmy agents is not subject to Goods and Services Tax (GST), as such agents qualify as employees rather than independent service providers and not employees of the bank. The bench of Justice M. Nagaprasanna quashed multiple show cause notices issued by the Commercial Taxes Department and clarified the legal position regarding the taxability of services rendered by pigmy agents. The case arose following an inspection conducted in June 2022 by the State Commercial Taxes Department to verify GST compliance by the bank. Subsequently, authorities issued notices alleging that the bank had failed to pay GST under the reverse charge mechanism on commission paid to pigmy agents for various financial years. The department treated these agents as “business facilitators” or intermediaries, thereby attracting GST liability. The bank, however, challenged this classification, arguing that pigmy agents are employees and that payments made to them constitute salary, not taxable consideration. The central question before the court was whether services rendered by pigmy agents and the commission paid to them could be brought within the ambit of “supply” under GST law, thereby attracting tax liability. The High Court undertook a detailed analysis of the nature of engagement of pigmy agents and concluded that they function under the control and supervision of the bank, establishing a clear employer-employee relationship. Relying on the Supreme Court’s ruling in Indian Banks Association v. Workmen of Syndicate Bank, the court observed that commission paid to such agents is essentially “wages”. The bank exercises significant control over their work. Agents are integrated into the bank’s operational framework The court emphasized that the relationship “is not one of detached contractual engagement, but one imbued with the attributes of a master-servant nexus.” Interpreting Section 7 of the CGST Act read with Schedule III, the court held that services rendered by an employee to an employer in the course of employment are neither a supply of goods nor services and are therefore outside the GST net. Since pigmy agents were held to be employees, the commission paid to them could not be subjected to GST. The court noted that legislative intent clearly excludes such services from taxation, and any attempt to levy GST in such cases would be contrary to statutory provisions. The court also examined the contractual terms governing pigmy agents and found multiple indicators of employment, including fixed remuneration structures and incentive payments. Requirement to follow bank instructions and maintain discipline. Provision for gratuity and security deposits. Restrictions on delegation of work These factors, the court held, further reinforced the existence of an employer-employee relationship. Apart from contesting GST liability, the bank had also challenged notifications issued by the Central and State governments extending the time limit for issuing tax notices under Section 73 of the GST Act. While the judgment primarily focused on the nature of the relationship and taxability, the challenge to the validity of such notifications formed part of the broader dispute. The High Court quashed the impugned show cause notices issued in December 2023, holding them unsustainable in law due to lack of GST liability on the transactions in question. Case Details Case Title: M/S. Karnataka Vikas Grameena Bank Belgaum Road Versus Deputy Commissioner Of Commercial Taxes Citation: JURISHOUR-678-HC-2026(KAR) Case No.: WRIT PETITION No.100806 OF 2024 (T - RES) Date: 08/04/2026 Counsel For Petitioner: Sr.Advocate V.Raghuraman And Advocate Bhanu Murthy J.S. Counsel For Respondent: G.M.Gangadhar, AAG Click Here To Read Order Read More: JURISHOUR | TAX LAW DAILY BULLETIN : APRIL 8, 2026

Pigmy Agents Are Bank Employees, No GST Payable on Commission: Karnataka High Court

Membership Required

Latest articles

DGGI Meerut | Allahabad HC Strikes Down GST Arrest Citing Absence of Transit Remand and Arrest Memo Defects

Owners Entitled to Current Gold Value Where Customs Sold Seized Gold Without Prior Notice: Madras HC

JURISHOUR | TAX LAW DAILY BULLETIN : 16 June, 2026

GST | ‘System Generated’ SCN Without Officer Details Invalid: Allahabad HC

More like this

DGGI Meerut | Allahabad HC Strikes Down GST Arrest Citing Absence of Transit Remand and Arrest Memo Defects

Owners Entitled to Current Gold Value Where Customs Sold Seized Gold Without Prior Notice: Madras HC

JURISHOUR | TAX LAW DAILY BULLETIN : 16 June, 2026

About us

Company

Categories