Bank charges deducted by foreign banks found not taxable on exporter under reverse charge; liability falls on actual service recipient

Classification of bank charges deducted by foreign correspondent banks concerned whether such charges constitute Banking and Other Financial Services subject to service tax under reverse charge. The note explains that where a domestic bank is engaged by the exporter and the domestic bank pays tax on its bill, there is no evidence the exporter engaged the foreign bank or received services directly from it; therefore reverse charge applies only to the actual service recipient and the demand on the exporter is untenable and set aside.

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Issues: Whether bank charges deducted by foreign banks from export proceeds and credited to the appellant's account are exigible to service tax as "Banking and Other Financial Services" under Section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(i)(G) and Rule 6 of the Service Tax Rules, 1994.

Analysis: The Tribunal examined whether the appellant directly received services from the foreign banks or whether the services were rendered to and paid for by the collecting Indian bank (State Bank of India). The Tribunal noted that the appellant engaged SBI which used foreign banks for collection; there is no evidence that the appellant directly engaged or dealt with the foreign banks. The Tribunal also considered and followed prior Final Orders in the appellant's own cases on identical facts, which held that where the foreign bank's deduction was made in the course of remittance to the Indian collecting bank and the appellant had no direct dealings with the foreign bank, the appellant cannot be treated as the recipient of the foreign bank's services for the purpose of service tax under the cited provisions.

Conclusion: The demand of service tax on bank charges is untenable and the appeal is allowed; decision is in favour of the assessee.

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