2023 (12) TMI 1008 - AT - Service Tax

Levy of service tax - business auxiliary service or not - 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 - applicability of reverse charge mechanism - HELD THAT - In the present case undisputed fact is that the bank charges deducted by the Foreign Bank while remitting the export proceed received from the Foreign Country to the exporters Indian Bank was demanded Service Tax - it is found that there is no contract or understanding between appellant and the Foreign Bank. The appellant being exporter of goods is exclusively dealing with Indian Bank i.e HDFC Bank of the appellant. In such case if any charge is collected by the Indian Bank from the appellant the said activity would be liable to Service Tax that too in the hands of the Bank. In the present case the dealing is clearly between the Foreign Bank and Indian Bank, therefore in such case the appellant is not a service recipient of the Bank charges collected by the Foreign Bank from the payment remitted to the Indian Bank. The Indian Bank has only collected such charges from the appellant as a reimbursement which was born by the Indian Bank while transacting with the Foreign Bank. Therefore, the appellant even though bearing the charges as a reimbursement the same cannot be said to be service charges - in the present case the demand of Service Tax was raised under the head of BAS which is absolutely incorrect. Therefore, on this count also the demand of Service Tax will not sustain. The impugned order set aside - appeal allowed.

Summary

Issues:
The issue involves the demand of Service Tax on bank charges deducted by the Foreign Bank while remitting export proceeds to the Indian Bank, under the category of Business Auxiliary Services (BAS) on the ground that the Indian Bank deducted the same amount from the total proceeds while remitting it to the appellant.

Judgment Details:

Issue 1: Recipient of Service
The appellant, engaged in the business of exporting goods, avails services of Indian banks for collection of sales proceeds from foreign buyers. The Tribunal held that the appellant is not the recipient of the service provided by the Foreign Bank, as there is no direct contract or understanding between the appellant and the Foreign Bank. The Indian Bank, in this case, is considered the service recipient. Therefore, the appellant cannot be charged Service Tax on the bank charges collected by the Foreign Bank.

Issue 2: Classification under BAS
The appellant argued that the demand under BAS is incorrect as the activity is classifiable under Banking and other Financial services. The Tribunal agreed with this submission, stating that the demand raised under BAS is not sustainable as the charges collected by the Foreign Bank are towards banking and financial services, not BAS.

Issue 3: Revenue Neutrality
The appellant contended that the demand is revenue neutral as the Service Tax paid is available as CENVAT Credit. The Tribunal acknowledged this argument, citing precedents where such credits were allowed, making the demand unsustainable on this ground.

Issue 4: Limitation
The demand for the period 2008-09 to 2012-13 was challenged on the grounds of being beyond the normal period and limitation. The appellant claimed a bona fide belief that certain software-related activities were outside the purview of Service Tax. The Tribunal supported this argument, stating that the demand for the extended period is not sustainable due to the appellant's genuine belief and compliance with filing returns.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal, emphasizing that the appellant, as an exporter, is not the recipient of the service provided by the Foreign Bank. The demand under BAS was deemed incorrect, and the Service Tax liability on the bank charges was not upheld. The judgment was pronounced on 21.12.2023.