Charges Deducted by Foreign Banks on Export Remittances Not Liable to Service Tax: CESTAT [Read Order]
CESTAT held that charges deducted by foreign banks on export remittances are not liable to service tax since exporters are not the service recipients.

Charges Deducted - Foreign Banks - Export Remittances - Service Tax - CESTAT - Taxscan
Charges Deducted - Foreign Banks - Export Remittances - Service Tax - CESTAT - Taxscan
The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that charges deducted by foreign banks on export remittances are not liable to service tax as the exporter is not the recipient of the service.
Annur Cotton Mills, the appellant, is a unit of Sharadha Terry Products Limited engaged in bleaching and dyeing processes of terry towels. The appellant held a service tax registration under “Transport of Goods by Road.” During scrutiny, the department found that the appellant had not paid service tax on charges deducted by foreign banks while realizing export proceeds.
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A show cause notice was issued demanding Rs. 4,07,014 along with interest and penalties under the Reverse Charge Mechanism. The adjudicating authority confirmed the demand, which was upheld by the Commissioner (Appeals). Aggrieved by the Commissioner’s order, the appellant approached the CESTAT.
The appellant’s counsel argued that for the period April 2012 to June 2012, Section 66A required services to be received in India, but in this case the services were outside India. For the period July 2012 to March 2013, the Place of Provision of Services Rules, 2012 applied, but the department relied on repealed provisions in the show cause notice.
They argued that the foreign banks acted only as intermediaries, and the place of provision of service was the location of the foreign banks, which was outside India. They relied on tribunal decisions in appellant’s own case in Final Order No. 40084/2024, as well as rulings in Sanjay Electricals, Borthakur & Co., and Fashion Knits, all holding that such charges are not liable to service tax.
The revenue counsel argued that foreign banks provided taxable “Banking and Financial Services” and that the appellant was the recipient of those services in India. He contended that service tax was payable under Reverse Charge and supported the findings of the lower authorities.
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The two-member bench comprising Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that the issue was no longer res integra and had been settled in several earlier decisions such as Kadri Mills, SKM Egg Products, Theme Exports, and Dileep Industries.
The tribunal explained that the appellant had no direct dealings with foreign banks, and no servic
e provider–recipient relationship existed between them. It pointed out that any service, if at all, was rendered by foreign banks to Indian banks, and not to the exporter.
The tribunal set aside the impugned order and allowed the appeal with consequential relief, explaining that charges deducted by foreign banks while remitting export proceeds are not liable to service tax.
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