2019 (11) TMI 1130 - HC - Service Tax

Import of services - Reverse charge mechanism - Service rendered by the intermediary bank (foreign bank) - Bank Guarantee Commission - realisation charges - contentions of the petitioner is that they have not received the service of the foreign bank at Iraq or the intermediary bank situated outside this country directly and therefore, the petitioner is not bound to pay service tax in respect of the service rendered by those banks for the purpose of furnishing bank guarantees. Whether the petitioner or their Banker namely Indian Bank, Adyar, is liable to pay the same in respect of the service rendered by intermediary Bank as well as the Banker at Iraq which furnished the Bank Guarantee to the supplier of the petitioner? HELD THAT - In this case, there is no dispute to the fact that the petitioner's bank in this country namely Indian Bank, Adyar has not furnished the Bank Guarantee to the foreign supplier of the petitioner. On the other hand, the Indian Bank approached the intermediary Banks which are admittedly located outside this country, which in turn approached the bank situated in Iraq only for the purpose of furnishing Bank guarantee on behalf of the petitioner to its foreign supplier at Iraq - Therefore, there is no doubt that though the event of furnishing the bank guarantee had taken place in three parts, the chain of events connecting those three parts will undoubtedly lead to an irrebuttable conclusion that all those three events were aimed only to provide the service to the petitioner, namely furnishing of Bank guarantee to its foreign supplier. The petitioner had incurred expenditure in foreign currency towards Bank Guarantee Commission and export proceeds realisation charges paid to the intermediary Banks situated outside India. Certainly, a taxable service has been provided to the petitioner namely, Banking or other financial services. It is the categorical finding of the authorities who passed the impugned orders that taxable service by way of issuing bank guarantee to the petitioner's customer at Iraq and by way of remitting the exports proceeds to the petitioner, had been performed by the intermediary banks for the petitioner - the petitioner cannot claim that they are not the recipient of the service. At no stretch of imagination, it can be said that the petitioner's Bank at Chennai, namely, Indian Bank, Adyar, is recipient of the Service provided by the intermediary Bank or the foreign bank situated in Iraq. Needless to say that the Indian Bank, Adyar, namely, the banker of the petitioner has facilitated the service to be rendered by the intermediary Banks and the foreign Bank in Iraq only for the purpose of providing bank guarantee on behalf of the petitioner. Therefore, the petitioner is not justified in shirking its liability to pay service tax relatable to the Bank Guarantee Commission and realisation charges involved in this case. Petition dismissed - decided against petitioner.

Summary

Issues Involved:
1. Liability to pay service tax on bank guarantee commissions and other charges paid to intermediary foreign banks.
2. Applicability and binding nature of trade notices issued by one Commissionerate on other Commissionerates.
3. Admissibility of writ petitions in the presence of an alternative appellate remedy.

Detailed Analysis:

1. Liability to Pay Service Tax on Bank Guarantee Commissions and Other Charges Paid to Intermediary Foreign Banks:
The petitioner, a service provider and recipient, entered into contracts with overseas customers requiring performance and advance bank guarantees issued by Iraqi banks. Due to the lack of direct relationships between the petitioner's Indian bank and Iraqi banks, intermediary foreign banks were engaged. The Indian bank debited the petitioner's account for charges, including service tax, which was paid to the Government of India. The petitioner contended that it did not directly receive services from foreign banks and thus was not liable for service tax under the Place of Provision of Services Rules, 2012. However, the court found that the petitioner was indeed the recipient of the service as the intermediary banks provided the bank guarantees on behalf of the petitioner, making it liable for service tax.

2. Applicability and Binding Nature of Trade Notices Issued by One Commissionerate on Other Commissionerates:
The petitioner relied on a trade notice dated 10.02.2014 issued by the Commissioner of Service Tax-I, Mumbai, which clarified that service tax would not be applicable for charges paid to intermediary foreign banks. The petitioner argued that this notice should be binding on all Commissionerates. However, the court, referencing the Supreme Court's decisions in *Commissioner of Central Excise, Bhopal v. Minwool Rock Fibres Ltd.* and *Union of India v. NITDIP Textile Processors Pvt. Ltd.*, held that departmental circulars are not binding on quasi-judicial authorities or courts. Thus, the trade notice from Mumbai Commissionerate was not binding on the Chennai jurisdiction or the court.

3. Admissibility of Writ Petitions in the Presence of an Alternative Appellate Remedy:
The respondent argued that the writ petition was not maintainable due to the availability of an alternative remedy of filing an appeal before the Commissioner (Appeals). The court noted that the petitioner had already availed of the appellate remedy for a different period, resulting in an order against the petitioner. The court emphasized that the quasi-judicial authority was not bound by the trade notice from another Commissionerate and that the merits of the case did not support the petitioner's claims. Consequently, the court dismissed the writ petitions, affirming the petitioner's liability to pay service tax.

Conclusion:
The court dismissed both writ petitions, concluding that the petitioner was the recipient of the services provided by the intermediary banks and thus liable for service tax. The trade notice from the Mumbai Commissionerate was not binding on other Commissionerates or the court. The availability of an alternative appellate remedy further weakened the petitioner's case.