No Service Tax applicable on the amount charged by Foreign Bank for Remission of Export Sale Proceeds: CESTAT [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench, held that service tax was not applicable on the amount charged by the foreign bank for remission of export sale proceeds.

On verification of the records of the appellant, Lingeswara Creation, it was noticed that the appellant was receiving the export sales proceeds which were transferred by the foreign banks. To the department, it appeared that the specific charges deducted from the sale proceeds before transfer was the consideration paid by the appellant for services rendered by the foreign bank.

A show cause notice (SCN) was issued alleging that the appellant failed to pay service tax on taxable service of “Banking and other financial Services” from a non-taxable territory, as envisaged under reverse charge mechanism in terms of Section 66A read with erstwhile Taxation of Services Rules, 2006. After due process, the Adjudicating Authority confirmed the demand with interest and penalties.

When appealed, the Commissioner (Appeals - 1) rejected it and upheld the order passed by the Adjudicating Authority. Before the CESTAT, the counsel for the appellant argued that service tax under reverse charge on foreign bank charges deducted from export proceeds is payable only by the actual service recipient, which is the Indian Bank for collection and remittance.

The counsel also submitted that the Indian bank has already discharged service tax on the commission retained by it. Further, it was argued that as per Place of Provision of Service Rules, 2012, any fees charged by the remitting bank is not liable to service tax as the provider and the activity is located outside India.

The tribunal found merit in the contentions put forth by the appellant and held that there arises no liability to service tax on the appellant. The bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member thus set aside the order in question and allowed the appeal.

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