Service Tax Refund allowable on amount paid on Commission Charges for Credit Facility: CESTAT Rules in Favor of BOI [Read Order]

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) in a ruling in favour of Bank of India ( BOI ) has held that refund of service tax paid on commission charges for granting credit facility is Allowable subject to verification.

The assessee is a corporate banking branch in Chennai. The assessee had issued a Stand by Letter of Credit (SBLC) in favor of M/s. Aban Singapore Pte. Ltd., which is a subsidiary of M/s. Aban Offshore Ltd. Chennai. The SBLC was issued to Bank of India, Singapore Branch, for a period of seven years as security for all payment obligations of M/s. Aban Singapore Pte. Ltd. It appears that M/s. Aban Singapore Pte. Ltd. had paid commission to the bank on a quarterly basis in convertible foreign exchange.

The bank remitted the service tax on the commission received from M/s. Aban Singapore Pte. Ltd. When the bank realized that it was not liable to pay service tax on the commission received in terms of provisions of the Export of Services Rules, 2005, the service tax paid has been claimed as a refund.

A Show Cause Notice was issued proposing to reject a major part of the refund claim on the ground of limitation in terms of Section 11B, as refund of the service tax paid should be claimed within one year from the date of payment of service tax.

The Original Authority has rejected the entire refund claim, holding that the appellant has not complied with the provisions of the Export of Services Rules, 2005, inasmuch as the appellant had not produced the 'original request' of M/s. Aban Singapore Pte. Ltd. for sanction of credit facilities.

The bank's sanction letter was sent to the office of the holding company in Chennai, clearly evidencing that the request for provision of services had been made by the recipient of service from an office in India.

The appellant had obtained, as security, the assets of the holding company in Chennai, and the appellant had even conducted an inspection of the secured assets of the holding company in India. As the recipient of services has not made an order for the provision of services from outside India, the Original Authority concluded that services could not be considered an export of service in terms of the proviso to Rule 3(iii) of the Export of Services Rules, 2005, and that the requirements of Notification No.11/2005-ST have not been fulfilled.

The two member bench of Sulekha Beevi C.S (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that the appellant bank has satisfied all the conditions for treating the service as an export of service, but there is a need to verify whether the service tax paid has been recovered or not from M/s. Aban Singapore Pte. Ltd. to be eligible for refund.

The tribunal held that the appellant is eligible for refund of service tax paid on the commission charges in respect of granting credit facility to M/s. Aban Singapore Pte. Ltd., subject to conducting verification whether the appellant has recovered the service tax paid from M/s. Aban Singapore Pte. Ltd. or not.

While allowing the appeal, the Tribunal remands matter back for the limited purpose of verifying whether the service tax was collected by the appellant.

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