2024 (12) TMI 948 - AT - Service Tax

Levy of service tax - Banking and Financial Services - reverse charge mechanism in terms of the provisions of Section 66A of the Finance Act, 1994 for the services received from outside India - services received by the appellants from AFL, Hong Kong during the course of realization of export proceeds which includes 3% fee and specified charges for transfer of money to the account of the appellants - demand of service tax on various specified charges deducted by the foreign banks from the sale proceeds of the exports made by the appellants for transferring the foreign exchange to the accounts of the appellants maintained in India - extended period of limitation - penalties. HELD THAT - The identical issues as involved in the present case, were also involved in the case of M/S. AKR TEXTILE AND OTHERS VERSUS COMMISSIONER OF CENTRAL EXCISE SERVICE TAX COIMBATORE 2020 (10) TMI 479 - CESTAT CHENNAI wherein Chennai Tribunal has allowed 22 appeals of the exporters by setting aside the demand of service tax. Further, it is found that the service of remittance by a foreign bank to Indian bank of the exporter is not liable to service tax at the hands of the exporter. In this regard, reference made to the decision of Chennai Bench of the Tribunal in the case of M/s. SKM EGG Products Export 2023 (3) TMI 1384 - CESTAT CHENNAI wherein the Tribunal after relying upon the decision of M/s. Dileep Industries Pvt Ltd vs. CCE, Jaipur 2017 (10) TMI 1231 - CESTAT NEW DELHI , has observed ' From the record, it appears that while exporting their goods, they lodged their bills for collection to the Indian Bankers who in turn send the same to the foreign banks. The foreign banks while remitting the money to the Indian Bank, deduct their charges for collection of bills which in turn are charged by the Indian Banks from the appellants. When it is so, then the appellant are not entitled to pay the service tax.' The demand raised cannot sustain and requires to be set aside - Since the demand itself does not sustain, the invocation of extended period and imposition of penalties does not arise - Appeal allowed.

Summary

Issues Involved:

1. Whether the appellant received payment processing services from M/s. AFL engaged by the foreign buyer to process payments to the appellant.
2. Whether the appellant received services from Foreign Banks that make payments of sale proceeds of exported goods owed by the foreign buyer to the appellant.

Issue-wise Detailed Analysis:

1. Payment Processing Services from M/s. AFL:

The primary contention was whether the appellant received payment processing services from M/s. AFL, which was engaged by the foreign buyer. The department alleged that the appellant was liable to pay service tax on reverse charge basis under Section 66A of the Finance Act, 1994, for services received from outside India. The appellant argued there was no service provider and service receiver relationship with AFL, as the transactions involved a trade discount rather than a service fee. The Tribunal referred to similar cases, such as AKR Textiles, where it was held that the foreign entity acted as an intermediary, and the service was performed outside the taxable territory, thus not attracting service tax. The Tribunal concluded that the appellant did not receive taxable services from AFL and the demand was unsustainable.

2. Services from Foreign Banks:

The issue here was whether the appellant received services from foreign banks that deducted charges from the sale proceeds of exports. The department claimed these were taxable under Banking and Financial Services, but the appellant contended that the foreign banks were engaged by the overseas buyer, not the appellant. The Tribunal found that the foreign banks' charges were deducted as a facility for collecting charges from the Indian bank, not as a service to the appellant. Citing precedent cases like Rogini Garments, the Tribunal held that the foreign banks provided services to the Indian banks, not the exporter, and thus, the appellant was not liable for service tax. The Tribunal reiterated that the appellant did not have a service agreement with the foreign banks, and the demand was not sustainable.

Conclusion:

The Tribunal set aside the impugned order, concluding that the demands for service tax on both counts were based on erroneous interpretations. The services were either performed outside India or did not constitute taxable services to the appellant under the Finance Act, 1994. Consequently, the invocation of the extended period and imposition of penalties were also deemed unwarranted. The appeal was allowed with consequential relief as per the law.