Appellant not liable for service tax on foreign bank charges under reverse charge mechanism.

The Tribunal found that the appellant was not liable to pay service tax on bank charges deducted by foreign banks. It determined that the foreign bank was the service provider and the Indian bank was the service recipient responsible for the service tax under the reverse charge mechanism. The appellant's liability was negated as they only received services from the Indian bank, making the Indian bank liable for the service tax. The Tribunal set aside the demand, remanding the matter for quantification verification and determining any direct payment liabilities to foreign banks. The impugned orders were overturned, and the appeal was allowed.

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Issues Involved:
1. Liability of the appellant to pay service tax on bank charges deducted by foreign banks.
2. Determination of the service recipient in the transaction between foreign banks and Indian banks.

Summary:

1. Liability of the appellant to pay service tax on bank charges deducted by foreign banks:

The case revolves around the deduction of bank charges by overseas banks from the export realization of the appellant's goods. The Indian bank of the appellant paid service tax on such charges. The department contended that the appellant, as the service recipient, was required to discharge service tax liability on these charges under Section 66A of the Finance Act, 1994, read with Rule 2(1)(d)(iv) of the Service Tax Rules, 2002.

2. Determination of the service recipient in the transaction between foreign banks and Indian banks:

The appellant argued that it had no direct dealings with the foreign banks, and the transaction was between the Indian bank and the foreign bank. Therefore, the foreign bank was the service provider, and the Indian bank was the service recipient liable to discharge the service tax. The appellant relied on various judgments, including Rajpetro Specialities Pvt Ltd, Cylwin Knit Fashions & Others, Raymond Limited, Dileep Industries Pvt Ltd, and Dishman Pharmaceuticals & Chemicals Ltd, which supported their stance.

Tribunal's Findings:

The Tribunal found that the service tax was demanded on the bank charges deducted by the foreign bank while remitting the export proceeds to the Indian bank. The Indian bank merely recovered the amount as reimbursement of the service charges borne by them. Therefore, the foreign bank was the service provider, and the Indian bank was the service recipient liable to pay service tax under the reverse charge mechanism, as per Rules 2(d)(1)(iv) of the Service Tax Rules, 1984.

Even if the appellant received any service, it was only from the Indian bank, making the Indian bank liable to pay the service tax under the forward charge mechanism. Hence, the appellant was not liable to pay the service tax under any circumstances.

Supporting Judgments:

The Tribunal referred to the case of Raj Petro Specialties Pvt Ltd, where it was held that the appellant was not liable to pay service tax as they had no direct dealings with the foreign banks. The service recipient was the Indian bank, which paid the charges to the foreign banks.

The Tribunal also cited the Board Circular dated 10.02.2014, which clarified that services provided by foreign banks to Indian banks for processing import/export documents were liable for service tax under the reverse charge mechanism, with the Indian banks being the service recipients.

Conclusion:

The Tribunal concluded that the appellant was not liable to pay service tax on the bank charges deducted by the foreign banks. The demand was set aside, and the appeal was allowed. The Tribunal remanded the matter to the adjudicating authority to verify the quantification and determine if any service tax liability arose from direct payments by the appellant to the foreign banks. If no direct payments were made, no service tax could be demanded from the appellant. The impugned orders were found unsustainable and were set aside. Appeals were allowed.

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