Foreign bank charges not subject to service tax under reverse charge mechanism for knitted garment manufacturers.

The Tribunal ruled in favor of the appellants, manufacturers and exporters of knitted readymade garments, holding that charges deducted by the foreign bank were not subject to service tax under reverse charge mechanism. It was determined that the charges were not payment for services as there was no formal agreement between the foreign bank and the appellants. The extended period for invoking the demand was deemed not applicable as there was no intentional evasion or suppression of facts. Consequently, the appeals were allowed with consequential relief, and the impugned orders were set aside.

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Issues:
1. Whether the appellants are liable to discharge service tax under reverse charge mechanism for charges deducted by the foreign bankRs.
2. Whether the extended period for invoking the demand is justifiedRs.
3. Whether the charges deducted by the foreign bank can be considered as consideration paid for services under reverse charge mechanismRs.

Analysis:
1. The appeals involved the common issue of whether the appellants, manufacturers and exporters of knitted readymade garments, were liable to pay service tax under reverse charge mechanism for charges deducted by the foreign bank. The department contended that the foreign bank provided taxable services to the appellants, making them service recipients. The appellants argued that the foreign bank did not provide any service to them, as the bank was chosen by the foreign buyer for remitting sale proceeds. The appellants maintained that the charges deducted by the foreign bank were not subject to service tax, citing Trade Notice and judicial precedents. The Tribunal held that the charges deducted by the foreign bank were not payment for services, as there was no formal agreement between the foreign bank and the appellants. The department's argument was rejected, and the appeals were allowed with consequential relief.

2. The issue of the extended period for invoking the demand was raised during the proceedings. The department argued that the extended period was justified due to the verification conducted by them, which revealed the short-payment of service tax. However, the appellants contended that they had not paid service tax on the belief that the charges were not liable to service tax, and there was no suppression of facts. The Tribunal noted that the appellants had all relevant documents available, and there was no intentional evasion. Therefore, the extended period was deemed not invocable, and the appellants were granted relief on this issue.

3. The Tribunal examined whether the charges deducted by the foreign bank could be considered as consideration paid for services under reverse charge mechanism. The department argued that the charges constituted consideration for services rendered by the foreign bank in transferring sale proceeds. However, the Tribunal, relying on a Trade Notice and a judicial precedent, concluded that the charges deducted were part of a bank-to-bank transaction and not payment for services. The Tribunal emphasized that the appellants did not have a direct relationship with the foreign bank and were not aware of the identity of the bank chosen by the foreign buyer. Therefore, the levy of service tax on the charges deducted by the foreign bank was deemed unsustainable, and the appeals were allowed with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellants on all issues, holding that the charges deducted by the foreign bank were not subject to service tax under reverse charge mechanism. The extended period for invoking the demand was also deemed not applicable due to the absence of suppression of facts. The appellants were granted relief, and the impugned orders were set aside.

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