Foreign Bank Fees on Export Realisations Not Liable to Service Tax Under RCM: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise andService Tax Appellate Tribunal (CESTAT) has held that service tax cannot be levied under the Reverse Charge Mechanism (RCM) on charges deducted by foreign banks while processing export proceeds.

M/s Annur Cotton Mills, a unit of Sharadha Terry Products Ltd., the appellant was engaged in processing textile products and export activities. In the course of its export business, the company received payments from overseas customers through banking channels.

The export proceeds were routed through the assessee’s bank in India as well as intermediary foreign banks involved in the remittance process. These foreign banks deducted certain charges for facilitating the transfer and realization of export proceeds.

As per the department, the services rendered by the foreign banks amounted to “Banking and Financial Services” and that the assessee, being the recipient of such services in India, was liable to pay service tax under the Reverse Charge Mechanism.

Based on this, a show cause notice was issued seeking recovery of service tax on the foreign bank charges allegedly paid for the services received from overseas banks. The demand was subsequently confirmed by the adjudicating authority and later upheld by the Commissioner (Appeals).

Aggrieved by the appellate order, the assessee approached the CESTAT.

Before the Tribunal, it was argued that a similar issue had already been decided in the assessee’s own case for an earlier period. The appellant relied on a previous order of the Chennai Bench wherein a similar demand raised on foreign bank charges deducted from export proceeds had been set aside.

After hearing both sides, the bench of Vasa Seshagiri Rao (Technical member) and P. Dinesha (Judicial member), following the decision of a similar case of the appellant set aside the demand order and held that no service tax could be demanded on the alleged Banking and Financial Services rendered by foreign banks in connection with realization of export proceeds under RCM.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates