The Chennai bench of Customs, Excise And Service Tax Appellate Tribunal(CESTAT) held that the service tax under the head ‘Banking and Other Financial Services’ on the fees paid to foreign banks for the External Commercial borrowings was not applicable under the reverse charge mechanism.
M/s.Vedanta Limited, the respondent assessee hold Service Tax Registration and was also the manufacturers of Copper Anode, Sulphuric Acid and Phosphoric Acid. The Department was of the view that the assessee who was the recipient of service, has incurred expenses as fees paid to the foreign institutions and banks for External Commercial borrowings (ECB) which was a taxable service and are liable to pay service tax under reverse charge mechanism as the service provider (bank) is a non-resident of India and does not have any permanent establishment in India.
Mr. Ramnath Prabhu , the counsel for the assessee contended that the assessee had paid amount to foreign financial institutions towards External Commercial borrowings (ECB). It was also submitted that the Department was unable to recover service tax due to the fact that the service provider had a fixed establishment in India.
Ms. Sridevi Taritla, the counsel for the department contended that the assesee not furnished evidence with regard to the payments as to whether the foreign service provider had office in India.
The bench observed that the department had demanded service tax under the category of “Banking & Other Financial Services” on fees paid by respondents to foreign banks and financial institutions on the ECB and the respondent had provided detailed break up of the demand and the table in the grounds of appeal. It was also observed that the financial institutions have permanent establishment in India was not taxable under reverse charge mechanism.
The two member bench comprising of Sulekha Bheevi C.S. (Judicial Member) And M. Ajit Kumar (Technical Member) held that the department had failed to adduce any evidence that the amount was subject to service tax and these banks and financial institutions do not have permanent establishment in India while dismissing the appeal.
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