The proposal of imposing service tax on banks for insuring their deposits with an RBI subsidiary has been turned down.

The Central Board of Excise and Customs (CBEC) has over-ruled the proposal in this regard by the Commissionerate of Central Excise and Service Tax, Large Taxpayer Unit, sources said.

The commissionerate, part of the CBEC, was of the view that activities of the corporation are services and should attract tax under the head 'General insurance Business' with effect from May 1, 2006.

Deposit Insurance and Credit Guarantee Corporation, a Reserve Bank subsidiary, insures bank deposits to the tune of Rs one lakh for every depositor. Earlier, the commissionerate had communicated to the Reserve Bank that deposit insurance is liable to attract service tax.

However, the CBEC clarified on Friday that the corporation is doing a statutory function and hence cannot be taxed, according to sources.

The Large Taxpayer Unit is a self-contained tax administration office providing single-window services to taxpayers.