Foreign bank charges under reverse charge mechanism not taxable when no direct contract exists with recipient

CESTAT Ahmedabad held that service tax demand under reverse charge mechanism on foreign bank charges was not sustainable. The appellant had no direct contract with the foreign bank and was not the recipient of banking services. The banking activity occurred strictly between foreign and Indian banks, making the Indian bank liable for service tax, which it had already discharged and collected from appellant. The impugned order was set aside and appeal allowed.

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Issues involved: The issue involved in the present case is the liability of the appellant to pay service tax on foreign bank charges under the category of business auxiliary services under reverse charge mechanism.

Summary:

Issue 1: Liability of the appellant for service tax on foreign bank charges
The appellant contended that they are not the recipient of the service provided by the foreign bank as they had no direct dealing with the foreign bank. The appellant argued that any tax liability should fall on the Indian bank, which is the actual service recipient. The appellant also claimed that the demand is not sustainable due to revenue neutrality and should be barred by limitation. The Revenue, on the other hand, reiterated the findings of the impugned order. The Tribunal observed that since the banking activity was strictly between the foreign bank and the Indian bank, any taxable service involved should be between them, making the Indian bank liable to pay service tax. The Tribunal referred to previous judgments such as Raymond Limited vs. CCE and Greenply Industries Limited vs. CCE to support their decision. Based on the precedents and the facts of the case, the Tribunal held that the demand on the appellant was not sustainable, setting aside the impugned order and allowing the appeal.

Conclusion:
The Tribunal ruled in favor of the appellant, stating that the demand for service tax on foreign bank charges was not sustainable as the appellant was not the recipient of the service, and the Indian bank, as the actual recipient, had already paid the service tax. The impugned order was set aside, and the appeal was allowed.

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