Service Tax payable on Reverse Charge on Service of Foreign Institutions availed in getting ECBs: CESTAT [Read Order]

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that service tax is leviable on the services provided by the foreign institutions for getting external foreign commercial borrowings (ECB) from abroad.

The appellant-assessee have availed services of certain foreign-based agencies for receiving external foreign commercial borrowings (ECB) from abroad.

During 2006 to 2007, certain payments in the form of the commission have been paid by the appellant-assessee to the service provider in foreign exchange. The said services are taxable as Banking and Financial Services as provided under section 65 (105) (zm). The department was of the view that the appellant-assessee should have paid service tax on the amount of commission paid by them to the foreign-based service provider under the Reverse Charge Mechanism basis.

The Tribunal noted that as per the provisions of Section 66A of the Finance Act, 1994 read with Rule 3 of Taxation of Services (Provided from Outside India and received in India) Rules, 2006, the recipient of services of the above-mentioned category needs to discharge their service tax liability as if such services have been performed in India.

While upholding the demand, the Tribunal observed that “It is categorically been provided that even if a part of borrowings have been used abroad for the business purposes, the facts remain that recipient of services is based in India and therefore, as per the provisions Section 66A of Finance Act, 1994 read with relevant rules, the appellant-assessee should have discharged their service tax liability in India, on the amount of commission paid by them as the value of services received by them from abroad. Thus, we hold that appellant-assessee are legally liable to pay service tax on the service of foreign institutions availed in getting their ECBs.”