2023 (8) TMI 248 - AT - Service Tax

Liability of service tax on appellant or not - reverse charge mechanism - banking and other financial services - overseas banks has deducted certain bank charges from the export realization of the appellant s export of goods while remitting the export proceeds to the Indian bank of the appellant - HELD THAT - The service tax was demanded on the bank charges deducted by the foreign bank while remitting the export proceeds of the appellant to Indian Bank. The Indian Bank has deducted the same amount from the total proceed while remitting it to the appellant. Thus, the Indian bank has merely recovered the amount as reimbursement of the service charges borne by them. Therefore, in this transaction the service provider is the foreign bank and the service recipient is Indian Bank located in India as the recipient of service from the foreign bank is actual liable to pay service tax under reverse charge mechanism, in terms of Rules 2 (d) (1) (iv) of Service Tax Rules, 1984. Even assuming that the appellant have received any service, it is only from the Indian bank therefore, as per the forward charge mechanism, the Indian bank is liable to pay the service tax. Accordingly, under any circumstances in the given transaction the appellant is not liable to pay the service tax. Reliance placed in the decision of this Tribunal in the appellant s own case 2022 (12) TMI 1146 - CESTAT AHMEDABAD wherein it was held that when the assessee is not directly making the payment to the Foreign Banker towards any service provided by the said Foreign Banker to the Indian Bank, the assessee is not liable to pay service tax. With this settled position, we hold that any bank charges paid by Indian Bank to the Foreign Banks even though in connection with import and export of the goods and the same was debited to the appellant, the service tax liability does not lie on the appellant. The issue is no longer res- integra and in the identical facts and transaction the assessee is not held to be liable for payment of service tax - the impugned orders are not sustainable - Appeal allowed.

Summary

Issues Involved:
1. Liability of the appellant to pay service tax on bank charges deducted by foreign banks.
2. Determination of the service recipient in the transaction between foreign banks and Indian banks.

Summary:

1. Liability of the appellant to pay service tax on bank charges deducted by foreign banks:

The case revolves around the deduction of bank charges by overseas banks from the export realization of the appellant's goods. The Indian bank of the appellant paid service tax on such charges. The department contended that the appellant, as the service recipient, was required to discharge service tax liability on these charges under Section 66A of the Finance Act, 1994, read with Rule 2(1)(d)(iv) of the Service Tax Rules, 2002.

2. Determination of the service recipient in the transaction between foreign banks and Indian banks:

The appellant argued that it had no direct dealings with the foreign banks, and the transaction was between the Indian bank and the foreign bank. Therefore, the foreign bank was the service provider, and the Indian bank was the service recipient liable to discharge the service tax. The appellant relied on various judgments, including Rajpetro Specialities Pvt Ltd, Cylwin Knit Fashions & Others, Raymond Limited, Dileep Industries Pvt Ltd, and Dishman Pharmaceuticals & Chemicals Ltd, which supported their stance.

Tribunal's Findings:

The Tribunal found that the service tax was demanded on the bank charges deducted by the foreign bank while remitting the export proceeds to the Indian bank. The Indian bank merely recovered the amount as reimbursement of the service charges borne by them. Therefore, the foreign bank was the service provider, and the Indian bank was the service recipient liable to pay service tax under the reverse charge mechanism, as per Rules 2(d)(1)(iv) of the Service Tax Rules, 1984.

Even if the appellant received any service, it was only from the Indian bank, making the Indian bank liable to pay the service tax under the forward charge mechanism. Hence, the appellant was not liable to pay the service tax under any circumstances.

Supporting Judgments:

The Tribunal referred to the case of Raj Petro Specialties Pvt Ltd, where it was held that the appellant was not liable to pay service tax as they had no direct dealings with the foreign banks. The service recipient was the Indian bank, which paid the charges to the foreign banks.

The Tribunal also cited the Board Circular dated 10.02.2014, which clarified that services provided by foreign banks to Indian banks for processing import/export documents were liable for service tax under the reverse charge mechanism, with the Indian banks being the service recipients.

Conclusion:

The Tribunal concluded that the appellant was not liable to pay service tax on the bank charges deducted by the foreign banks. The demand was set aside, and the appeal was allowed. The Tribunal remanded the matter to the adjudicating authority to verify the quantification and determine if any service tax liability arose from direct payments by the appellant to the foreign banks. If no direct payments were made, no service tax could be demanded from the appellant. The impugned orders were found unsustainable and were set aside. Appeals were allowed.