Indian exporters not liable for service tax on bank charges paid to foreign banks under Section 66A

CESTAT Allahabad held that Indian exporters are not liable for service tax on bank charges paid to foreign banks. The tribunal relied on Trade Notice No 20/2013-14 clarifying that Indian exporters are not recipients of services from foreign/intermediary banks. Following precedents in Theme Exports and Dileep Industries cases, the tribunal found that since the domestic bank (ING Vyasa Bank) paid charges to foreign banks, the appellant cannot be treated as service recipient under Section 66A read with Rule 2(1)(2)(iv) of Service Tax Rules, 1994. Appeal allowed.

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Issues Involved:
1. Liability to pay service tax on bank charges paid to foreign banks under the Reverse Charge Mechanism.
2. Applicability of penalties and interest for non-payment of service tax.

Summary:

Issue 1: Liability to Pay Service Tax on Bank Charges Paid to Foreign Banks
The appellant, engaged in manufacturing and exporting goods, paid bank charges to foreign banks but did not pay service tax on these charges. The original authorities confirmed the demand for service tax under Section 73(1) of the Finance Act, 1994, arguing that the appellant received "Banking & Other Financial Services" from foreign banks, making them liable under the Reverse Charge Mechanism as per Section 66A of the Finance Act, 1994.

The appellant contended that this issue had been settled in various cases, including Greenply Industries Ltd, Clywin Knit Fashions, and Dishman Pharmaceuticals & Chemicals Ltd, where it was held that no service tax is payable on such payments. They also referenced Trade Notice No. 20/2013-14-ST-I, which clarified that Indian exporters are not the recipients of services from foreign banks, thus not liable for service tax.

The Tribunal considered previous judgments and the Trade Notice, concluding that the Indian exporters are not the recipients of services from foreign banks. Consequently, the appellant cannot be treated as a service recipient, and no service tax can be charged under Section 66A of the Finance Act, 1994.

Issue 2: Applicability of Penalties and Interest
The original orders imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994, for non-payment of service tax. The Assistant Commissioner, in a subsequent order, set aside the penalty under Section 76 but upheld other penalties and interest.

Given the Tribunal's finding that the appellant is not liable for service tax on the bank charges paid to foreign banks, the foundation for imposing penalties and interest is invalidated. Consequently, the impugned orders were set aside.

Conclusion:
The Tribunal allowed the appeals, setting aside the impugned orders, and ruled that the appellant is not liable to pay service tax on the bank charges paid to foreign banks under the Reverse Charge Mechanism. The penalties and interest imposed were also invalidated.

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