Whether service tax payable by exporter under reverse charge on commission deducted by foreign bank with respect to realisation of export proceeds?

PJ/CASE LAW/2015-16/2787

Case:-RAYMOND LTD. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI-II

Citation:-2015 (37) S.T.R. 495 (Tri. –Mumbai)

Brief Facts:- The appeal and stay petition are directed against Order-in-Appeal No. 574 /PD/2014, dated 20-4-2014 passed by Commissioner, Central Excise & Service Tax (Appeals-IV), Mumbai. Under the impugned order, the learned appellate authority had up-held confirmation of Service Tax demand of Rs. 14,69,439/- along with interest thereon and also imposition of equal amount of penalties by the adjudicating authority vide Order-in-Original No. 50 /ST-II/ Addl.SKS/DN VI/2012-13, dated 20-3-2013. Aggrieved of the same the appellant is before Tribunal.

Appellant contentions:-The learned counsel for the appellant submits that they had a manufacturing unit of textile products and exported goods to the foreign buyer. The bills for collection of the export proceeds were handed over to Standard Chartered Bank at Fort, Mumbai. The Standard Chartered Bank undertook collection of the export proceeds through their office in UK who retained a part of the amount towards collection charges. The department is asking the appellant to pay Service Tax on the amount retained by the UK branch of the Standard Chartered Bank on reverse charge basis under Section 66A of the Finance Act, 1994. Also they submit that they have no transaction or no contract with Standard Chartered Bank at UK. They had handed over the bills to Standard Chartered Bank at Mumbai and the said bank has discharged the liability on the commission charged by them. Since both the service provider and the service recipient are situated in India, the question of demanding Service Tax from the appellant in respect of the commission retained by the Standard Chartered Bank in UK does not arise at all. He further submits that for the subsequent period the department has accepted this contention and dropped the Service Tax demand. Accordingly, he prays for grant of stay.

Respondent contentions:-The learned Superintendent (AR) for the Revenue reiterates the finding of the lower authorities and submits that the appellant is liable to pay service on the commission retained by the UK Branch of Standard Chartered Bank.

Reasoning of Judgment:-We notice that the contract for collection is between the appellant and the Bombay branch of the Standard Chartered Bank. Thus both the service provider and service recipient are situated in India and therefore there is no import of service involved. How the Standard Chartered Bank in Mumbai makes arrangement for collection is not the business of the appellant, nor are they concerned with that. We, therefore, find that the appellant has made out a prima facie case for waiver of pre-deposit. We therefore, grant unconditional waiver of pre-deposit of the dues adjudged vide the impugned order and stay of recovery thereof during the pendency of the appeal.

Decision:-Stay granted.

Comment:-The core of the case is that exporter is not liable to pay service tax on the commission deducted by foreign bank for realisation of export proceeds. This is for the reason that the exporter has contacted Indian bank and is not concerned with the Foreign Bank. The exporter is the service receiver for the services provided by the Indian Bank whereas the Indian bank is the service receiver in case of services provided by the foreign bank. As such, even if there is any service tax liability under reverse charge mechanism, it is the Indian Bank which is liable to pay and not the exporter.

Prepared By: Anas Kachaliya

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PJ/CASE LAW/2015-16/2787

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