2024 (11) TMI 287 - AT - Service Tax

Service tax liability on foreign bank charges and finance cost paid in foreign currency - Demanding Service Tax u/s 73 (1) alongwith interest u/s 75 and penalty u/s 77 (2) and 78 of the Finance Act, 1994 - appellant is a holder of service tax registration for payment of service tax on Work contract Service, Manpower Supply and Recruitment Service, Security/Detective Agency Service and GTA etc - HELD THAT - Service provider and service recipient relationship exist between the foreign bank and the buyer and not between the foreign bank and appellant. Appellant has not received any service from the foreign banks as no relationship exists between the foreign bank and the appellant. Appellant has not received any service from the foreign banks as no relationship exists between the foreign bank and the appellant. If at all any service provider and service recipient relationship exists with the appellant then it is between appellant and its banker in India and not with foreign bank located outside India and in which case the liability of service tax if any is on the Indian bank of the appellant company providing the 'banking and financial service' to the appellant. It is the business understanding of the appellant with its buyer as to who will bear the bank charges. Thus we hold that in the instant case no service has been provided within the taxable territory. Foreign Bank of the buyer had provided service to its client i.e. Buyer who is having letter of credit facility with it Foreign bank after retaining its charges and commission remits the net amount to appellant's bank in India where the appellant has facility of letter of credit. Appellant had received service if any from its bank in India with whom all the documents were negotiated. It does not have any direct connection/ nexus with the Foreign Bank of the Buyer When the provider of service i.e. 'the Foreign Bank' and recipient of service i.e. 'the Buyer' both are located outside India, there is no question of taxing such service in India as the said service has been provided outside the taxable territory and outside the purview of Section 66B which is the charging section for levy of service tax. Hon'ble Tribunal in the case of Greenply Industries Ltd. 2015 (12) TMI 80 - CESTAT NEW DELHI has been held that there is no document showing foreign banker charging any amount directly from assessee and the assessee cannot to be treated service recipient and Service Tax not to be charged under Section 66A of Finance Act, 1994 read with Rule 2(1)(2)(iv) of Service Tax we ort from Rules, 1994. As per Circular No. 180/06/2014-S.T., dated 14-10-2014, no service tax is leviable as place of provision of service is outside India. It has been clarified that no service tax is payable per se on the amount of foreign currency remitted to India from overseas for the reason that the remittance comprises money and does not in itself constitute any service in terms of the definition of 'Service' as contained in Section 65B of the Finance Act, 1994. Conversion charges or fee levied for sending such money would also not be liable to service tax as the person sending money and the company conducting the remittance are both located outside India. Otherwise also if appellant is legally required to pay the amount of service tax under reverse charge mechanism then the appellant would be entitled to avail CENVAT credit of the amount of service tax so paid and utilize it against payment of excise duty in respect of its clearances of final products. We rely upon the judgment in the case of JET Airways (I) Ltd. 2016 (8) TMI 989 - CESTAT MUMBAI Thus issue is no more res-integra. It stands decided in favour of the assessee. The Commissioner (Appeals) is held to have wrongly ignored the decisions as quoted above. Invoking extended period of limitation - We observe that SCN has been issued on 20.10.2015 for the period FY 2010-11 to 2014- 15. The normal period of limitation is eighteen months from the relevant date . Hence, the demand for the period prior to 31.03.2014 in respect of Finance Cost paid to foreign banks in foreign currency is time barred. Demand in respect of bank charges is for the period 2010-11 to 2012-13, is completely hit by time limitation. Suppression means not providing information which the person is legally required to state, intentionally or deliberately with intent to evade payment of tax. Appellant had clearly reflected such payments in its notes to financial statements based on which SCN has been issued. Hon'ble Supreme Court has held in the case of Continental Foundation Jt. Venture 2007 (8) TMI 11 - SUPREME COURT that since the expression suppression in proviso to Section 11A is accompanied by very strong words such as fraud or collusion , it has to be construed strictly and mere omission to give information is not suppression of facts unless it was deliberate act to evade payment of tax. Supreme Court's in the case of Collector Vs. Champhar Drugs 2007 (8) TMI 11 - SUPREME COURT has held that mere inaction or failure on the part of manufacturer will not amount to suppression of facts. Conscious or deliberate withholding of information when the manufacturer knew otherwise is required to be established before saddling the manufacturer with liability for a period beyond one year. For the bonafide belief neither extended period is applicable nor is penalty imposable. Also no penalty is imposable where there is interpretation of law. SCN does not bring out any evidence to show any positive act of suppression on the part of the appellants. In the case of Uniworth Textiles Ltd. 2013 (1) TMI 616 - SUPREME COURT held that mere non-payment of duty does not amount to collusion, or willful misstatement or suppression of fact and that it demands proof of a high order of credibility. All these decisions are sufficient for us to hold that the extended period has wrongly invoked. Resultantly, the SCN is held to be barred by time.

Summary

Issues:
1. Service tax liability on foreign bank charges and finance cost.
2. Validity of show cause notice and invocation of extended period of limitation.
3. Existence of service provider and recipient relationship with foreign banks.
4. Interpretation of Section 67 of the Finance Act, 1994.
5. Applicability of Circular No. 180/06/2014-ST.
6. CENVAT credit entitlement under reverse charge mechanism.
7. Time limitation for demand and imposition of penalties.

Analysis:

1. The case involved the appellant's alleged non-payment of service tax on foreign bank charges and finance costs. The appellant contended that the show cause notice was solely based on audit objections without independent investigation, challenging the validity of the notice.

2. The issue of time limitation was raised concerning the show cause notice issued for the period 2010-11 to 2014-15. The appellant argued that no positive act of suppression was shown, relying on legal precedents to support their position.

3. The appellant disputed the existence of a service provider and recipient relationship with foreign banks, emphasizing that no services were received from them. The appellant's position was supported by legal arguments and previous decisions.

4. The interpretation of Section 67 of the Finance Act, 1994 was crucial in determining the taxability of the charges levied by foreign banks. The appellant's contention was that the charges did not qualify as consideration for services provided within the taxable territory.

5. The applicability of Circular No. 180/06/2014-ST was raised to support the argument that no service tax was leviable on foreign currency remitted to India, as the place of provision of service was outside India.

6. The appellant sought to avail CENVAT credit under the reverse charge mechanism if required to pay service tax. Legal precedents were cited to support this argument.

7. The issue of time limitation for the demand and imposition of penalties was analyzed in detail. The Tribunal held that the show cause notice was time-barred and lacked evidence of suppression, leading to the setting aside of the order under challenge and allowing the appeal.

This detailed analysis covers the various legal issues addressed in the judgment, providing a comprehensive overview of the arguments presented and the Tribunal's findings.