9911796707
TMI Blog2020 (8) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... such activity, the Appellant Bank charges service tax to the exporters and there is no dispute about the said charges in this Appeal. The Appellant Bank cannot be said to be the recipient of service for the activities undertaken by the Foreign Banks situated outside India, the charges for which are deducted at source on the export bill. 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. It is, thus, clear that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of sub-section (1) of section 67. What needs to be noted is that each of these refer to where the provision of service is for a consideration , whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a consideration for the provision of such service. Explanation to sub-section (1) of section 67 defines consideration to include any amount that is payable for the taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir respective banks) to International trade. In the absence of any specific agreement to the contrary, all contracts are governed by these protocols. 3. In the case of export trade, as per the specific instructions of Indian exporter, the Appellant Bank provides services like sending export documents to the exporter's buyers bank, collection for payment of bill of exchange. Similarly, in the case of import trade, at the specific request of the importer, the Appellant Bank provides services like issue of Letter of Credit, acceptance of Bill of Exchange, providing documents of title of the goods to the importer, making payment of Bill of Exchange on due date. The Appellant Bank charges commission/fees for the provision of such services to the exporters/importers and pays service tax on such services. The rendering of such service by the Appellant is not in dispute in this Appeal. 4. It needs to be noted that for completion of an export or import transaction, at least two banks are involved. One bank is based in the country of the exporter and the other bank is based in the country of the importer. The bank with whom the importer or exporter, as the case may be, holds a bank accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to March, 2015 on foreign bank charges under the reverse charge mechanism in contravention of the provisions of sections 67 and 68 of the Finance Act read with rule 6 of the Service Tax Rules, 1994[the Rules]. The relevant portion of the show cause notice is reproduced below: "6. And whereas from the facts narrated above, it appears that the foreign banks have provided services of transfer/exchange of documents and transfer of money relating to exports made by exporters in India, who have received moneys through the assessee bank against their exports. It thus appears that the foreign banks have provided Banking & Other Financial Services as defined under clause (12) of Section 65 of the Finance Act, 1994 and taxable under sub-clause (zm) of clause (105) of Section 65 of the Finance Act, 1994 to the assessee. Clause 12(a)(ix) of Section 65 of the Finance Act, 1994, as it stood prior to 1.7.2012, included the following services under the taxable category of Banking & Other Financial Services : "(ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Finance Act was also invoked. 11. The Appellant Bank filed a detailed reply dated March 09, 2017 to the aforesaid show cause notice. It not only contended that the show cause notice issued on February 08, 2016 for recovery of service tax for the period October 01, 2010 to March 31, 2015 was time barred since the show cause notice did not contain any evidence to indicate that there was any willful suppression on the part of the Appellant Bank, but also contended that the service tax could not be levied either for the period prior to July 01, 2012 or for the subsequent period. In regard to the period prior to July 01, 2012, the Appellant Bank pointed out that the Foreign Bank did not transact business of banking in India and, therefore, would not fall within the definition of a "banking company" under section 65(11) of the Finance Act, which is a pre-requisite for any service to fall under the category of "banking & other financial services", as contemplated under section 65(12) of the Finance Act. It was also pointed out that the services rendered by the Foreign Bank are to the foreign buyers, on whose behalf it acts for making the payment to the Indian exporters through the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant Bank and the Foreign Bank for providing banking services was also not accepted and the relevant observations are as follows : "20.2 ……I find that as per the provisions of Service Tax Law no where it has been mentioned that the written agreement is necessary for providing taxable service. As per the existing provisions of law both type of agreement i.e written as well as oral agreement is acceptable. Thus I find that the assessee (M/s SBBJ) is liable for payment of Service Tax under reverse charge mechanism under the provisions of in terms of the provisions of Section 66A of the Finance Act, 1994 and Notification No. 30/2012-ST, dated 20.06.2012 read with erstwhile Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 and Rule 2(1)(d)(i)(G) of the Service Tax Rules, 1994 under reverse charge mechanism." 14. In arriving at the aforesaid conclusion, the Commissioner relied upon a Trade Notice dated February 10, 2014 issued by the Commissioner of Service Tax-I, Mumbai. The Commissioner, therefore, held that the Appellant Bank availed the services of the Foreign Bank and was, therefore, liable to pay service tax on the bank charges/commission deducted by the Foreign Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thirty Eight Thousand Seven Hundred Eighty One only) on M/s State Bank of Bikaner & Jaipur (SBBJ Head Office), Tilak Marg, C-Scheme, Jaipur under Section 78 of the Finance Act, 1994. 16. Shri Sanjay Khemani, learned Consultant appearing on behalf of the Appellant Bank, made the following submissions : (i) The services alleged to have been provided by the Foreign Bank to the Appellant Bank cannot fall under the heading 'banking & other financial services', as defined under section 65(12) of the Finance Act; (ii) The foreign bank charges cannot be considered as 'consideration' received by the Appellant Bank and included in the value of services; (iii) The Appellant Bank cannot be considered as the recipient of the service provided by the Foreign Bank; (iv) The nexus between consideration (i.e. foreign bank charges) and the services provided by the Foreign Bank is established between the Foreign Bank and the exporter/ importer and not between the Foreign Bank and the Appellant Bank; (v) The Foreign Bank and the Appellant Bank are co-service providers to the exporters/ importers; (vi) The Trade Notice dated February 10, 2014 issued by the Commissioner of Service Tax, Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n considered; and (vi) The present appeal is a case of import of service which is governed by section 66A of the Finance Act. 18. We have considered the submissions advanced by the learned Consultant for the Appellant and the learned Authorised Representatives of the Department. 19. As noticed above, the issue that needs to be decided is whether the Foreign Banks have provided any service of transfer/exchange of documents and transfer of money relating to exports made by the exporters in India, who receive money through the Appellant Bank against the said exports. According to the Department, the Foreign Bank provides "banking and other financial services", as defined under section 65(12) of the Finance Act, which is taxable under section 65(105)(zm) of the Finance Act at the hands of the Appellants under a reverse charge mechanism. The contention of the Appellant Bank is that no service has been provided by the Foreign Bank or the Foreign Intermediary Bank to the Appellant Bank and, therefore, the Appellant Bank cannot be asked to pay service tax on reverse charge mechanism and in any case there is no flow of consideration from the Appellant Bank to the Foreign Bank or the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by M/s EXPORTER. (b) For realization of export proceeds, M/s EXPORTER draws a Bill of Exchange on X Bank. (c) M/s EXPORTER approaches the Appellant Bank for collection of the Bill of Exchange of $ 100,000. The Appellant Bank charges ₹ 2,000 plus service tax of ₹ 300 for providing the service, which includes reimbursement of courier charges. (d) The Appellant Bank forwards the Bill of Exchange with the requisite documents to X Bank with a direction to credit the proceeds to the Nostro account of the Appellant Bank with A Bank, after deducting bank charges of X Bank from the export proceeds. (e) Assume that the Appellant Bank does not have any direct banking relationship with X Bank and the Appellant Bank sends the Bill of Exchange with the requisite documents through a Foreign Intermediary Bank. On due date, X Bank collects $100,000 from M/s IMPORTER and after deducting $ 20 as its own charges and $ 20 towards charges of the Foreign Intermediary bank, remits $ 99,960 to A Bank. (f) A Bank deducts $8 towards its charges and credits $99,952 to the Nostro account of the Appellant Bank. (g) The Appellant Bank, on sighting the credit in its Nostro account, credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges shall be borne by M/s IMPORTER, then in that case, X Bank shall remit to A Bank $100,000 for deposit in the Appellant Bank Nostro Account in the manner described above, which shall in turn credit to M/s EXPORTER's account with $100,000*70 = ₹ 70,00,000/-). In such a case, $48 will be recovered by the Foreign Bank from M/s IMPORTER, who will effectively make payment of $100,048. Since $48 is paid by M/s IMPORTER to banks located outside India, there is no question of any service tax thereon as Foreign Banks are not located in India. The Appellant Bank makes payment of service tax of ₹ 105 on $10 equivalent to ₹ 700 received from M/s EXPORTER. In this case also, $48 is neither accounted in the books of M/s EXPORTER or in the books of Appellant Bank. 25. According to the Appellant Bank, the following facts emerge from the aforesaid transactions : (a) The exporter and importer decide the Foreign Bank. (b) The exporter and importer also decide who will bear the charges. (c) Bill of Exchange is drawn on the Foreign Bank by the Exporter and the Appellant Bank has to send the documents to the Foreign Bank on which Bill of Exchange is drawn. (d) The foreign b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viders, the service flows from one to another and every link in that chain receives input service and provides output service. Each service provider in the chain has to pay service tax on its output service and take input credit as per the Cenvat Credit Scheme. If this principle is applied to the present case and the flow diagram is seen, it becomes evident, according to the Department, that the service provided by the Foreign Bank is first received by the Appellant Bank. In this connection, the learned Authorized Representatives of the Department have also placed reliance upon the decision of the Tribunal in Greenply Industries Ltd. and contended that in a similar situation relating to foreign trade and import, the Tribunal has held that Greenply Industries had neither received any service from the Foreign Bank nor directly paid any amount to the Foreign Bank. They cannot, therefore, be treated as a service recipient and so no service tax can be charged from them under the reverse charge mechanism. In fact, it is the Indian Bank which had received services from the Foreign Bank, for which service tax cannot be demanded from Greenply Industries. 28. It is now necessary to examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution; or (iii) a transaction in money or actionable claim; (b) xxxxxxxx xxxxxxxx xxxxxxxx (c) xxxxxxxx xxxxxxxx xxxxxxxx Explanation 1.- xxxxxxxx xxxxxxxx xxxxxxxx Explanation 2.- xxxxxxxx xxxxxxxx xxxxxxxx Explanation 3.- xxxxxxxx xxxxxxxx xxxxxxxx Explanation 4.- xxxxxxxx xxxxxxxx xxxxxxxx 32. The 'taxable service' under section 65B(51) of the Finance Act is as under : "65B(51) 'taxable service' means any service on which service tax is leviable under section 66B;" 33. The period involved in this appeal is from October, 2010 to March, 2015. Thus, it covers the period prior to July 01, 2012 and the subsequent period also. For the period prior to July 01, 2012, the show cause notice alleges that Foreign Banks provide services of transfer/exchange of documents and transfer of money relating to exports made by the exporters in India and these exporters receive money through the Appellant Bank against the exports. Thus, the Foreign Banks provide "banking & other financial services" as defined under section 65(12)(a)(ix) of the Finance Act. For the period w.e.f July 01, 2012, the show cause notice alleges that the said service is covered by section 65B(44) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation.-For the purposes of this section,- (a) "consideration" includes (i) any amount that is payable for the taxable services provided or to be provided; (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed; (iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endment, in the following words : "The amount charged should be for "for such service provided": Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined." (emphasis supplied) 39. The aforesaid view was reiterated by the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that "consideration" must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Act. It should also be remembered that there is marked distinction between "conditions to a contract" and "considerations for the contract". A service recipient may be required to fulfil certain conditions contained in the contract but that would not necessarily mean that this value would form part of the value of taxable services that are provided. 41. The Appellant Bank has not paid any consideration to the Foreign Bank as is clear from the factual position emerging out of the export trade and, therefore, also the Appellant Bank cannot be said to be the recipient of any service by the Foreign Bank. 42. Learned Authorized Representatives of the Department have, however, placed reliance upon the decision of the Tribunal in Greenply Industries Ltd., which was subsequently followed in certain decisions, including Raj Petro Specialities P. Ltd. vs CCE & ST, Silvasa [MANU/CS/0078/2018]. In these decisions, the issue was whether the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re clarified that, in cases where the foreign banks are recovering certain charges for processing of import/export documents regarding remittance of foreign currency, the banks in India would be treated as recipient of service and therefore required to pay Service Tax. 7. All the banks are requested to follow the above mentioned clarifications and to also pay tax for the past period. 8. This Trade Notice is issued with the approval of Chief Commissioner, Central Excise, Mumbai-Zone-I." [emphasis supplied] 44. The aforesaid Trade Notice dated February 10, 2014 places reliance upon two interim orders passed by the Principal Bench at Delhi in Gracure Pharmaceuticals Ltd. vs Commissioner of Central Excise, Jaipur-I [2013 (32) STR 249 (Tri.-Del)] and by the Ahmedabad Bench of the Tribunal in Gujarat Ambuja Exports Ltd. vs Commissioner of Central Excise, Ahmedabad [2013 (30) STR 667 (Tri-Ahmd.)]. Thus, it is based on prima facie views expressed by the Benches in the interim orders. It is also not clear whether the Appeals have been decided or not. 45. The aforesaid Trade Notice dated February 10, 2014 was examined by the Madras High Court in BGR Energy Systems Limited wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roached the intermediary banks which are admittedly located outside this country, which in turn approached the bank situated in Iraq only for the purpose of furnishing bank guarantee on behalf of the petitioner to its foreign supplier at Iraq. Therefore, there is no doubt that though the event of furnishing the bank guarantee had taken place in three parts, the chain of events connecting those three parts will undoubtedly lead to an irrebuttable conclusion that all those three events were aimed only to provide the service to the petitioner, namely furnishing of bank guarantee to its foreign supplier. As rightly pointed out by the authorities who passed the impugned order, the petitioner had incurred expenditure in foreign currency towards bank guarantee commission and export proceeds realisation charges paid to the intermediary banks situated outside India. Certainly, a taxable service has been provided to the petitioner namely, banking or other financial services. It is the categorical finding of the authorities who passed the impugned orders that taxable service by way of issuing bank guarantee to the petitioner's customer at Iraq and by way of remitting the exports proceeds to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision was as to whether a sub-contractor was liable to pay service tax, even if the main contractor had discharged the service liability on the gross amount. The Tribunal held that it is not open to a sub-contractor to contend that he should not be subjected to discharge of the service tax liability in respect of a taxable service when the main contractor has paid service tax on the gross amount. The Larger Bench observed that in the scheme of service tax, the concept of CENVAT Credit enables every service provider in a supply chain to take input credit on the tax paid by him which can be utilized for the purpose of discharge of tax on his output service. There was no dispute whether the sub-contractor was required to pay service tax as submissions regarding revenue neutrality were made. The sub-contractor was providing a service to the main contractor. In the present case, it has been found that the Foreign Bank is not providing any service to the Appellant Bank. The issue of input credit on the tax paid for discharge of tax liability on output service does not arise at all as the issue involved in this Appeal is entirely different. Therefore, reliance placed on the aforesaid deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(d)(iv) of the Rules ibid. 5.4 Though in the light of findings as above, the notice does not require any further deliberations on the issue raised therein, however for the sake of discussion, I examine the second issue as to whether M/s SBBJ was a recipient of service to be made liable to pay service tax. I find that it is general practice that the exporters route their export documents through banking channel to ensure safe remittance and also to comply with the RBI guidelines and the FEMA provisions and that the Foreign based bankers usually deduct certain charges for one or other reason from the remittance made to the Indian bankers on account of the Indian exporters. It is also a fact that the Indian bankers do not make any such charge to the foreign bankers on behalf of the exporters. In this case, I find that the assessee bank had played the role of mediator between the Indian exporter and the foreign based banker representing the foreign importer as an agent. The assessee bank had collected the foreign remittances on behalf of his client by charging certain sum, which is liable to be taxed under 'Banking & Financial service' and there is no allegation of non-payment of se ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
