2025 (1) TMI 1038 - AT - Service Tax

Taxability - Banking and Financial Services - bank charges paid to foreign banks under reverse charge for the period from July 2012 to March 2013 - HELD THAT - The very same issue involving the same Appellant was decided in their favour by this Tribunal in M/S. SKM EGG PRODUCTS EXPORT (INDIA) LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE SERVICE TAX SALEM 2023 (7) TMI 756 - CESTAT CHENNAI wherein it was held the appellant cannot be treated as service recipient and no service tax can be charged under Section 66A read with Rule 2 (1)(2)(iv) of the Service Tax Rules 1994. Conclusion - The appellant cannot be treated as service recipient and no service tax can be charged under Section 66A read with Rule 2 (1)(2)(iv) of the Service Tax Rules 1994. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the bank charges deducted by foreign banks are taxable under the reverse charge mechanism as "Banking and other Financial Services" under Section 66A of the Finance Act, 1994?
Whether the invocation of the extended period for demand and imposition of penalties under Section 78 is justified?
Whether the appellant is entitled to a waiver of penalties under Section 80 of the Finance Act, 1994?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Bank Charges under Reverse Charge Mechanism

Relevant Legal Framework and Precedents: The legal framework revolves around Section 66A of the Finance Act, 1994, which deals with the reverse charge mechanism for services received from outside India. The precedents include decisions from the CESTAT in cases such as M/s. Theme Exports Pvt. Ltd. and M/s. Dileep Industries Pvt. Ltd.
Court's Interpretation and Reasoning: The court noted that the appellant did not directly engage with the foreign banks. Instead, the foreign banks provided services to the appellant's Indian bank (SBI), which in turn facilitated the export proceeds. The court emphasized that the service, if any, was rendered to SBI, not directly to the appellant.
Key Evidence and Findings: The appellant submitted documents showing that SBI, not the appellant, engaged with the foreign banks. The foreign banks deducted charges while remitting export proceeds to SBI.
Application of Law to Facts: The court applied the legal principle that the appellant cannot be considered a service recipient under Section 66A since the foreign banks did not directly charge the appellant.
Treatment of Competing Arguments: The department argued that the appellant was liable for service tax on the bank charges. However, the court rejected this, relying on precedents where similar facts led to the conclusion that the appellant was not liable.
Conclusions: The court concluded that the bank charges deducted by foreign banks are not taxable under the reverse charge mechanism, as the appellant was not the direct recipient of the service.

Issue 2: Invocation of Extended Period and Imposition of Penalties

Relevant Legal Framework and Precedents: The relevant sections are Section 78 of the Finance Act, 1994, concerning penalties for service tax evasion, and precedents regarding the extended period of limitation.
Court's Interpretation and Reasoning: The court did not find sufficient grounds for invoking the extended period or imposing penalties, given the absence of direct service provision to the appellant.
Key Evidence and Findings: The appellant had filed regular ST-3 returns and paid applicable taxes, indicating no intent to evade tax.
Application of Law to Facts: The court found that the appellant's actions did not constitute willful suppression or intent to evade tax, negating the justification for penalties.
Treatment of Competing Arguments: The department's claim of evasion was countered by the appellant's compliance with tax filings and precedents supporting non-liability.
Conclusions: The court concluded that the invocation of the extended period and imposition of penalties were not justified.

Issue 3: Waiver of Penalties under Section 80

Relevant Legal Framework and Precedents: Section 80 of the Finance Act, 1994, allows for waiver of penalties if reasonable cause is shown.
Court's Interpretation and Reasoning: Given the absence of intent to evade tax and the appellant's compliance, the court found grounds for waiving penalties.
Key Evidence and Findings: The appellant's compliance with tax filings and lack of direct dealings with foreign banks supported the waiver.
Application of Law to Facts: The court applied Section 80, recognizing the appellant's reasonable cause for non-payment.
Treatment of Competing Arguments: The department's arguments for penalties were outweighed by the appellant's demonstrated compliance and lack of intent.
Conclusions: The court allowed the waiver of penalties under Section 80.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The appellant has never dealt with the foreign bank on his own and the Banking and Other Financial Service if at all was rendered only to SBI."
Core Principles Established: The principle that services rendered to an intermediary bank do not constitute direct service to the appellant under Section 66A was reinforced.
Final Determinations on Each Issue:
- The bank charges deducted by foreign banks are not taxable under the reverse charge mechanism.
- The invocation of the extended period and imposition of penalties were not justified.
- Penalties were waived under Section 80 due to reasonable cause.

In conclusion, the appeal was allowed, and the appellant was granted consequential benefits according to the law.

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