Amount Deducted by Foreign Banks Towards Banking Charges Are not Taxable under Banking And Other Financial Services: CESTAT [Read Order]

The Chennai Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that the amount deducted by foreign banks towards banking charges is not taxable under banking and other financial services.

The appellant M/s. Kadri Mills (CBE) Ltd challenged the passed by the Commissioner of Central Excise (Appeals), Salem. The appellant is a manufacturer of Blankets, Throws, Sheets Duvet, Sham, and Bed skirt falling under Chapter Heading 63 of the CETA, 1985; and export them to various countries.

During the period from 1.4.2007 to 31.5.2012, the appellant while receiving the export proceeds, had received a lesser amount than what was due to them from the foreign banks viz. Capital One, USA, Wells Fargo Bank, Hong Kong, Bank of Ayutthaya Public Co. Ltd. Thailand, Bank of America, USA and Citi Bank, USA who have provided the services to M/s. Kadri Wovens do not have any fixed establishment in India.

The amount deducted by such foreign banks was bank charges and for that amount, the appellant had not paid any service tax since the service would fall under ‘Banking and Other Financial Service’ in terms of Section 66A of the Finance Act, 1994, and thus contravened the section and Rule 2(1)(d) and 6 of Service Tax Rules, 1994.

A  Show Cause Notice dated 16.10.2012 was issued demanding service tax with interest and a proposal to impose penalties under sections 76, 77 and 78 of the Finance Act, 1994. After due process of law, the original authority confirmed the service tax demand with applicable interest under section 75 a penalty under section 78 of the Finance Act, 1994 and a penalty for non-registration under section 77(1)(a) of the Finance Act, 1994 was imposed.

A two-member bench comprising Shri P. Dinesha, Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) observed that the appellants have submitted the documents for realization of export sale proceeds to their bank namely SBI, which in turn has used the services of the foreign bank for collection of export sale proceeds. The foreign banks who have rendered their services have deducted their charges while remitting the export sale proceeds to SBI.

In light of various judicial pronouncements, the CESTAT set aside the impugned order and allowed the appeal. Shri S. Durairaj appeared for the appellant and Shri N. Satyanarayanan appeared for Revenue. 

To Read the full text of the Order CLICK HERE

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