Whether service tax demand under reverse charge sustainable on payments made to foreign banks for collection of export proceeds?

PJ/Case Law/2013-14/1959

Case:- GRACURE PHARMACEUTICALS LTD. VERSUS COMMISSIONER OF C.EX., JAIPUR-I

Citation:-2013(32) S.T.R. 249 (Tri.-Del.)

Brief Facts:-The appellant, a manufacturer of pharmaceuticals, had made some exports. The exports had been made against letters of credit issued by their bankers, M/s. ICICI Ltd. and the sale proceeds of the goods exported were received through ICICI Bank. A show cause notice dated 16-10-2008 was issued to the appellant on the ground that they have made certain payments to foreign banks for collection of export proceeds on which service tax chargeable is Rs. 71,049/-. The department was of the view that the appellant have received the services of banking and financial services from the foreign banks and hence, as service recipient they were liable to pay service tax on the amount paid by them to the foreign bank. It is on this basis that a show cause notice dated 16-10-2008 was issued to them for demand of service tax amounting to Rs. 71,049/- along with interest and also for imposition of penalty under Sections 76, 77 and 78 of the Finance Act, 1994. The show cause notice was adjudicated by the Asstt. Commissioner vide Order-in-Original dated 27-10-2009 by which the service tax demand as made in the show cause notice was confirmed along with interest and besides this, penalty of equal amount was imposed under Section 78 of Finance Act, 1994 and also another penalty of Rs. 200/- per day under Section 76 ibid. On appeal to the Commissioner (Appeals), the Asstt. Commissioner's order was upheld by the Commissioner (Appeals) vide order-in-appeal dated 15-10-2010. Against this order of the Commissioner (Appeals), this appeal along with stay application has been filed.

Appellant Contentions:- Appellant pleaded that the appellant have not received any banking or financial services from the banks abroad, that the exports had been made against the letters of credit issued by ICICI Bank Ltd. and it is through M/s. ICICI Ltd. that the export proceeds had been received, that amount, in question, had been paid by them to ICICI against the bills raised by them and in these bills, M/s. ICICI have also charged service tax, that the service tax charged by ICICI has been paid by them to the Government, that in view of this, no service tax is payable by the appellant, that since the appellant have a strong prima facie case, the requirement of pre-deposit of service tax, interest and penalty may be waived for hearing of the appeal and recovery thereof may be stayed till the disposal of the appeal.

Respondent Contentions:-The ld. SDR, opposed the stay application reiterating the findings of the Commissioner (Appeals) in the impugned order and emphasized that the amount paid by the appellant is for the service received from the foreign banks and hence, they are liable to pay service tax on the same as service recipient. He, therefore, pleaded that this is not a case for waiver.

Reasoning of Judgment:-We have carefully considered the submissions from both the sides and perused the records. There is no dispute that the amount on which the service tax is demanded had been paid by the appellant to ICICI Bank Ltd. against the bills raised by the bank. We also find that there is a letter from ICICI Bank addressed to the jurisdictional Range Superintendent informing that in respect of the amount recovered from the appellant, they had paid the service tax to the Government. When the appellant had received the service of opening letter of credit from ICICI Bank Ltd. and it is through ICICI Bank Ltd. that they had received the export proceeds and the charges for the services availed had been paid to the ICICI Bank Ltd., we are, therefore, of the prima facie view that there is no banking and financial services, which have been received by the appellant from any foreign bank and as such, the impugned order confirming service tax demand is not correct. In view of this, the requirement of pre-deposit of service tax demand, interest and penalty is waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal. The stay application is allowed.

Decision:-Stay application allowed.

Comment:-The essence of this case is that when the service tax on the payments made by the assessee to the banks stands paid by the banks, the service tax demand on the assessee under reverse charge mechanism as service recipient cannot prima facie materialise.

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PJ/Case Law/2013-14/1959

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