Reverse charge service tax on overseas remittance charges fails where exporter is not the contractual recipient of the service.

Service tax under reverse charge does not arise on overseas payment-processing arrangements unless the exporter is shown to be the contractual recipient of the service for consideration in the taxable territory. Where the foreign entity was engaged by the overseas buyer to remit export proceeds, the exporter was not treated as the recipient and no tax liability arose. Charges deducted by foreign banks during remittance of export proceeds were likewise treated as a bank-to-bank money transaction, not a taxable service rendered to the exporter. On that basis, the demand for service tax, interest and penalties was set aside.

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Issues: (i) Whether payment processing services allegedly provided by a foreign entity engaged by the overseas buyer were received by the exporter so as to attract service tax under reverse charge. (ii) Whether charges deducted by foreign banks while remitting export proceeds to India constituted taxable services received by the exporter.

Issue (i): Whether payment processing services allegedly provided by a foreign entity engaged by the overseas buyer were received by the exporter so as to attract service tax under reverse charge.

Analysis: The liability was examined under Section 66A of the Finance Act, 1994 read with the rules governing services received from outside India. The exporter had not contracted with the foreign entity for collection of export proceeds, and the overseas buyer alone had engaged the foreign entity to discharge its own obligation to remit export value. The activity was treated as occurring outside the taxable territory and, on the facts, the exporter could not be characterised as the recipient of the service.

Conclusion: The issue is answered in favour of the assessee. The demand on this count is not sustainable.

Issue (ii): Whether charges deducted by foreign banks while remitting export proceeds to India constituted taxable services received by the exporter.

Analysis: The deduction of bank charges by foreign banks was considered a bank-to-bank remittance transaction and not a service rendered to the exporter. The exporter had no direct dealing or agreement with the foreign banks, and the remittance activity was found to be a transaction in money rather than a taxable service. The Tribunal also held that the extended period and penalties could not survive once the demand itself failed.

Conclusion: The issue is answered in favour of the assessee. The demand on this count is not sustainable.

Final Conclusion: The demand of service tax, interest, and penalties was set aside, and the exporter obtained full relief in the appeal.

Ratio Decidendi: For service tax liability on overseas remittance or payment-processing arrangements, the exporter is not liable unless the service is shown to have been received by the exporter as a contractual recipient for consideration within the taxable territory; foreign bank deduction of remittance charges in a bank-to-bank transaction does not by itself create such liability.

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