TaxTMI 
TaxTMI 
2026 (8) TMI 594
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....ional trading company of the Government of India engaged primarily in export and import transactions. Under the business model, the domestic buyer places an indent upon the appellant intimating details of goods required by him including the source of supply, price settled with the foreign supplier, etc. Since the domestic buyer is not able to negotiate better terms, he approaches the appellant to procure the goods for the buyer. The appellant arranges the banking transactions such as opening of Letter of Credit [LC] in favour of foreign supplier or in favour of his banker through the bank in India. The appellant issues proforma invoice to the domestic buyer who makes advance payment to the appellant. Once the goods are shipped by the foreign supplier as per the order placed by the appellant, a High Seas Sales agreement [HSS agreement] is entered into between the appellant and the domestic buyer for sale of imported goods to the domestic buyer before the goods enter into landmass of the country. 3. That under the HSS, the appellant issues invoice to the domestic buyer without charging VAT/Sales Tax as HSS transactions are not exigible to sales tax/VAT. In addition, the appellant ....
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....x) the activity involving the issue of pay order, demand draft, cheque, letter of credit and bill of exchange, etc., it is the bank who is authorized to issue and it is only at the request of the appellant that the Indian Banker has issued the LC in favour of the foreign supplier as payment guarantee. He clarified that LC is actually an assurance issued by the bank to the buyer of goods stating that the seller will receive payment on time, which means that if the buyer fails to make the payments, the bank will do so on his behalf. He emphasized that the relationship between the appellant and the HSS buyer is that of seller and buyer and not service provider and service recipient. The Ld. Counsel has made an alternate argument that the supply of goods to HSS buyer (principal supply) and supply of taxable service under "banking and other financial services" is a composite supply, and the classification thereof is determined as supply of goods (principle supply). In the facts of the case, he submitted that the recovery of LC charges from the customer as reimbursement and transaction of sale of imported goods under HSS agreement which blended together to form composite transaction and ....
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....its customers. These charges were recovered separately from the commercial invoice value and, in several instances, were recovered through independent debit notes raised after completion of the HSS transaction. 11. That Section 65(12)(a)(ix) of the Act specifically includes services relating to the issue of Letters of Credit within the ambit of "Banking and Other Financial Services". The statutory definition is comprehensive and covers services relating to lending, issue of pay orders, demand drafts, cheques, letters of credit and other banking facilities. In the present case, although the LC is physically issued by the bank, the Appellant arranges the facility for its customers and recovers separate consideration towards such financial arrangement. Therefore, the Appellant acts as a provider of financial facilitation services and the consideration recovered is liable to Service Tax. 12. The Appellant has failed to substantiate its contention that the impugned charges had already formed part of the assessable value for Customs purposes. 13. The documentary evidence examined during adjudication proceedings clearly demonstrates that in several transactions, LC charges were r....
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....he trading of goods have taken place beyond the territorial jurisdiction of India and, therefore, cannot be subjected to domestic sales. Mentioning the various activities carried out by the appellant, his argument is that the dominant nature of the contract is not trade of goods but a contracted financial and procurement service. He further emphasized on the scope of the term, "in relation to" occurring in Section 65(105)(zm), which according to him does not merely tax 'the issuance of LC' but also includes any service provided in relation to the issuance of LC by a body corporate or commercial concern. Analysis 18. Having heard both sides, the common question which arises for consideration is whether the agreement is for trading of goods or is for providing services so as to incorporate the activity of facilitating the issuance of LC as amounting to rendering of service under Section 65(105)(zm) read with Section 65(12)(ix). 19. Before considering the issue on merits, we may appreciate the factual position in the present case where the appellant imported the goods ordered by the customer and then selling the same to the customer on HSS basis. Under the normal internationa....
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....d all other levies and charges. 20.a. This clause is self-sufficient to say that the LC charges which the appellant had incurred are inclusive in the amount payable by the appellant. The terms and conditions of the agreement clearly show that it is an agreement for sale of goods, ensuring the liability of the buyer to pay towards all costs incurred by the appellant and also the taxes, etc. Further, the agreement specifically provided for retiring of documents and other levies and charges. The agreement being for sale of goods, the relationship between the parties, i.e., the appellant and the HSS buyer is that of seller and buyer and not as service provider and service recipient. Consequently, the basic requisites for classifying it as 'service' are absent. 21. The submission of the Revenue is that the activity of issue of LC by banking company, financial institution, including NBFC or any other body corporate, or commercial concern, is covered under the taxable service as defined under Section 65(12)(a)(ix) of the Act and though the appellant had not issued LC but has opened LC in the bank and has paid LC charges to the bank. Therefore, the activity carried out by the appella....
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....Circular No. 83/1/2006-ST dated 04.07.2006, clarifying that the expression 'any other person' appearing in Section 65(12) read with Section 65(105)(zm) of the Act is to be read ejusdem generis with the preceding words. Similarly, the expression 'other financial services' appearing in Clause (ix) of Section 65(12), the Board clarified that it is a residuary entry and includes those services which are normally rendered by banks and financial institutions. Therefore, a banking company or a financial institution or NBFC or any other service provider similar to bank or financial institution are liable to service tax under Section 65(105)(zm). Since, the Department of Post is not similar to bank or financial institution, the Board clarified that it does not fall under the category of 'any other similar service provider'. The Circular issued by the Board is binding on the Department and, therefore, it cannot be interpreted as suggested by the Mr. Garbyal. In that view, we are of the opinion that the appellant being purely a trading organization is not engaged in banking and other financial services and hence, cannot be categorized as any other person or a body corporate engaged in activit....
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....recipient. Similar view has been taken by the Principal Bench in M/s. B. G. Exploration & Production India Ltd. vs. Commissioner of CGST & CX, Navi Mumbai [2022 (63) GSTL 351 (Tri-Mum)] where, once again, it was held that mere flow of money by itself is not enough to fasten the service tax liability. It is an obligation on the part of the Department to show that the said flow of money is a consideration for rendition of a service, in which case alone there can be a liability to service tax. 25. We may now refer to the decision in the case of Indian Oil Corporation Ltd. vs. Commissioner of CCE, Goa [2015 (38) STR 501 (Tri-Mum)] where the facts of the case were quite identical dealing with the transaction under HSS. The issue was whether additional handling charges and facilitation charges on import of goods paid by importer/seller was leviable to service tax under "Business Auxiliary Service" and it was concluded as under: "6. In this case, although ZIL placed an order on the appellant for procurement of Naphtha and furnace oil, as per the agreement the transactions are on principal-to-principal basis i.e. the appellant is the seller, ZIL is the buyer. The appellant has ....