2025 (1) TMI 538 - AT - Service Tax

Liability to pay service tax on foreign bank charges paid to foreign correspondent bank - whether the bank of the exporter in India from whom the transactions are undertaken is liable under Reverse Charge Mechanism to pay service tax and whether such bank can be called as recipient of service? - HELD THAT - The issue decided in the case of State Bank of Bikaner Jaipur 2020 (8) TMI 80 - CESTAT NEW DELHI where it was held that ' The second reason assigned by the Additional Commissioner is that the Indian Bank does not pay any amount to the Foreign Bank and, in fact, the Indian Bank only plays a role of a mediator between the Indian exporter and the foreign banker representing the foreign importer. This is a general practice that the exporters are required to follow by routing the export documents through a banking channel. Thus, the Indian bank did not receive any service from the Foreign Bank.' The facts of the present case are squarely covered under the said decision. Hence, there are no reason to differ there from. Conclusion - The Appellant Bank merely acts on behalf of the Indian exporter and facilitates the service. The Appellant Bank, therefore, would not be liable to pay service tax under the reverse charge mechanism. Appeal of Revenue dismissed.

2020 (8) TMI 80 - AT

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the bank in India, acting as an intermediary in processing export documents and facilitating payment realization, is liable to pay service tax under the Reverse Charge Mechanism for services rendered by foreign banks.
Whether the Indian bank can be considered the "recipient" of services from foreign banks, thereby incurring a service tax liability.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability to Pay Service Tax under Reverse Charge Mechanism

Relevant Legal Framework and Precedents: The legal framework involves the applicability of service tax under the Reverse Charge Mechanism as per the relevant tax laws. The precedent case cited is "State Bank of Bikaner & Jaipur Vs. Commissioner of Central Excise & Service Tax Alwar," which addressed similar issues regarding the role of Indian banks in processing export transactions.
Court's Interpretation and Reasoning: The court referred to the precedent where it was established that the Indian bank merely facilitates the service on behalf of the Indian exporter and does not receive any direct service from the foreign bank. Thus, the Indian bank is not liable under the Reverse Charge Mechanism.
Key Evidence and Findings: The court noted that the foreign bank does not conduct banking business in India and the Indian bank acts only as a mediator. The Indian bank does not make payments to the foreign bank; instead, charges are deducted at source on the export bill.
Application of Law to Facts: Applying the legal principles from the precedent, the court found that the Indian bank is not the recipient of services from the foreign bank and therefore not liable for service tax under the Reverse Charge Mechanism.
Treatment of Competing Arguments: The Department's argument that the Indian bank should be liable for service tax was not supported by any new evidence or legal reasoning that could overturn the established precedent.
Conclusions: The court concluded that the Indian bank is not liable to pay service tax under the Reverse Charge Mechanism for the services rendered by foreign banks.

Issue 2: Recipient of Service

Relevant Legal Framework and Precedents: The definition of "recipient" in the context of service tax liability was explored, particularly in relation to banking and financial services.
Court's Interpretation and Reasoning: The court reiterated that the Indian bank acts on behalf of the exporter and does not receive services from the foreign bank. The foreign bank's role is limited to facilitating the transaction for the foreign importer.
Key Evidence and Findings: The court emphasized that the Indian bank does not pay the foreign bank, and the transaction is a standard practice in international trade, further confirming that the Indian bank is not the recipient of the service.
Application of Law to Facts: The court applied the legal definitions and found that the Indian bank's role as a facilitator does not make it a service recipient.
Treatment of Competing Arguments: The Department did not present any compelling arguments to challenge the established understanding of the recipient's role in these transactions.
Conclusions: The court upheld the decision that the Indian bank is not the recipient of services from the foreign bank and, therefore, not liable for service tax.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Appellant Bank merely acts on behalf of the Indian exporter and facilitates the service. The Appellant Bank, therefore, would not be liable to pay service tax under the reverse charge mechanism."
Core Principles Established: The principle that an Indian bank facilitating export transactions is not the recipient of services from foreign banks and is not liable for service tax under the Reverse Charge Mechanism was reinforced.
Final Determinations on Each Issue: The court dismissed the departmental appeal, upholding the decision that the Indian bank is not liable to pay service tax under the Reverse Charge Mechanism and is not the recipient of services from the foreign bank.

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