CASE STUDY

Prepared By: CA Neetu Sukhwani
 & Meet Jain

                                                                                                                            
Introduction:-
 
The appellant, hereinafter referred as M/s Metal Alloys Corporation are manufacturer-exporter of brass tubes, cupro nickel tubes, copper tubes falling under chapter 74 of the Central Excise Act, 1944. They are also registered under the service tax laws for discharging service tax liability under the category of “Goods Transport Agency Service”. During the course of audit of their records, it was observed that they have availed the services of Indian bank for realisation of export proceeds from the buyer. It was noticed that the Indian bank further availed the services of foreign bank and the foreign bank charged “Bank charges/Commission” for the services rendered by them in relation to export realisation which was ultimately recovered from the assessee by the Indian bank. Accordingly, it was alleged that the assessee had received services from foreign bank in relation to their business and consequently, they were liable to pay service tax on such commission under reverse charge mechanism as per the provisions of section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. Thereafter, a show cause notice was issued to them which culminated into order in original no. 09/ST/2014-15, DATED 02.05.2014 thereby confirming the service tax demand along with interest and penalties. Aggrieved by the order in original, the assessee filed appeal to the Commissioner Appeals. The outcome of the appeal filed to the Commissioner Appeals by the assessee is the subject matter of the present case study.
 

Metal alloys corporation [OIA no. RAJ-EXCUS-000-APP-268-14-15 dated 27.02.2015]

 
Relevant Legal Provisions:-
 
·         Trade Notice No. 20/2013-14-ST-1 dated 10.02.2014
·         Section 65(105)(zm) of Finance Act
·         Circular No. 163/14/2012-ST dated 10.07.2012
·         Notification No. 30/2012-St dated 20.06.2012.

Brief Facts:-
 
1)            M/S METAL ALLOYS CORPORATION(hereinafter referred to as appellant) are registered under service tax laws under the category of “Goods Transport Agency” having registration no. AALFM0200FST001. During the course of audit of the records of the appellant, it was observed that during the process of realisation of export proceeds from the buyer, the foreign bank charged “Bank charges/Commission” to the appellant for the services rendered by them in relation to export realisation. Accordingly, it was contended that as the appellant had received services from foreign bank in relation to their business, they had imported services and consequently, they were liable to pay service tax on such commission under reverse charge mechanism as per the provisions of section 66A of the Finance Act, 1994.
 
2)            The Department issued show cause notice no. VI (a)/8-11IA (RP-4)/ST/2012 dated 09.10.2013 proposing to levy service tax on the commission paid under the category of “Banking and Financial Services” for the period from 2008-09 to 2012-13 amounting to Rs. 24,083/- under the reverse charge mechanism in terms of the provisions contained in section 66A of the Finance Act, 1994 read with Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994 along with interest under section 75 of the Finance Act, 1994. The show cause notice also proposed to impose penalties under Section 76, 77 and Section 78 of the Finance Act, 1994.
 
3)            The Appellant replied to the above show cause notice wherein it was mainly contended that they were not liable to pay service tax under reverse charge mechanism on the commission charged by the foreign bank. This is for the reason that they were unaware of the identity of the foreign bank and that in reality, it was the Indian Bank that had availed the services of the foreign bank and it was the Indian Bank that was the person liable to pay service tax under the reverse charge mechanism.
 
4)            However, the learned Adjudicating Officer did not accept most of the submissions made by the appellant, but, dropped the penalty proposed under section 76 of the Finance Act, 1994 and passed the order in original no. 09/ST/2014-15, dated 02.05.2014 confirming demand for the financial year 2008-09 to 2012-13 amounting to Rs. 24,083/- to be recovered along with interest under section 75 of the Finance Act, 1994. Further penalty of Rs. 5, 000/- has also been imposed under section 77 of the Finance Act, 1994 and penalty of Rs. 24,083 under section 78 of the Finance Act, 1994. However, the penalty under section 76 as proposed in the impugned show cause notice was dropped.
 
5)    Aggrieved by the impugned Order in Original, to the extent it confirms service tax demand for the financial year 2008-09 to 2012-13 along with interest and penalty, the appellant preferred to file appeal before the Commissioner Appeals and the grounds taken by them are discussed below as follows:-
 
Appellant’s Contention:- The following are the grounds taken by the appellant in the appeal memorandum filed by them:
1)            The appellant submit that the Order-In-Original passed by the learned adjudicating authority to the extent it confirms service tax demand along with interest and penalty is erroneous and is liable to be set aside.
 
2)            The appellant submit that the impugned order is denying their contention that the services of the foreign bank are availed by the Indian bank. The reason given by the impugned order behind this is that as per Reserve Bank of India’s guidelines, foreign banks cannot directly remit the money to Indian exporter and only through authorised dealers of foreign exchange and therefore the same has to be remitted through Indian bank. Therefore, for this reason, the foreign bank has remitted the export proceeds to the Indian bank and not to the appellant. It is also contended that the foreign bank has deducted their bank commission from export proceeds of the appellant and therefore the foreign banks have provided their services to the appellant and not to the Indian bank. In this regard, it is reiterated that the appellant are not service receiver and so are not the person liable to pay service tax under the reverse charge mechanism with respect to services of foreign bank availed by the Indian bank. It is submitted that the service recipient is the Indian bank as the services of foreign bank are availed by the Indian bank during the course of providing services to the appellant. In other words, it can be said that the services of foreign bank are intermediary services used by the Indian bank to provide services to the appellant. As such, the appellant can be considered as service recipient only in case of services received from the Indian bank and is not liable to pay any service tax under reverse charge mechanism with respect to services provided by the Indian bank. To better understand the situation under hand, an illustration is given as follows:-
 
Company A provides services of tour operator services to Mr. X with respect to foreign tour. For the purpose of providing foreign tour services to Mr. X, Company A uses certain services like booking of hotels, reservation of tickets etc. of Company B that is situated in foreign country. Now, as company B that has fixed business establishment at a place outside India has provided services to Company A that has fixed establishment in India, the Company A is the service recipient. Therefore, Company A is liable to pay service tax on import of services from Company B under reverse charge mechanism. It cannot by any stretch of imagination be concluded that Mr. X is liable to pay service tax on the services provided by Company B to Company A because ultimately, the actual beneficiary of the services was Mr. X. In the present case, Mr. X is unaware that from whom Company A has availed intermediary services and so irrespective of the fact that the intermediary services availed by Company A were for the ultimate benefit of Mr. X, Company A would be considered as service recipient and would be liable to pay service tax on import of services under the reverse charge mechanism. However, the case would be different if Mr. X contacted Company B directly and availed the services of Company B. In such a case, Mr. X would be the service recipient and would be liable to pay service tax under reverse charge mechanism. From the above illustration, the appellant wants to state the thumb rule that the specific/explicit relationship of service provider and service receiver is required to be present in order to levy service tax and service tax cannot be levied on presumptive relationship of service provider and service receiver. It is logical also because when the service receiver is not even aware of the kind of services taken and from whom the services were availed, then the service receiver cannot be made liable to pay service tax on the said services merely on the grounds that the benefit accrued to him.
 
Similarly, in the present case, the appellant have availed the services of Indian Bank for realisation of export proceeds and it is the Indian Bank that has further availed the services of foreign bank in order to provide services to the appellant. Moreover, the appellant did not even know the foreign bank from whom the services were availed by the Indian bank. The appellant had only contacted Indian bank and if the Indian bank availed certain services of foreign bank, it was the Indian bank who availed the services and was liable to pay service tax under the reverse charge mechanism. As such, confirmation of service tax demand on the bank charges/commission deducted by the foreign bank under reverse charge mechanism is not tenable and deserves to be quashed.
 
 
3)            It was also submitted by the appellant that for demand of service tax, there should be relationship of “service provider” and “service recipient” and this relationship should be created either by an express or an implied contract. On the other hand, there is no such relationship between the foreign bank and them; in fact the identity of the foreign bank is also not known to them and therefore, the service tax cannot be levied on them. With respect to the above submission, the impugned order has held that even if the explicit direct contract has not been made by the appellant with the foreign bank, they have directed their bank to send the documents for collection and have allowed the deduction of charges towards payment of services that has been agreed upon. It is alleged that this is contract in itself through which arrangement has been made between the foreign bank and appellant and foreign bank has agreed to collect the payment on behalf of the appellant at the charges that has been negotiated through the foreign buyers. Accordingly, there is implied contract between the appellant and the foreign buyer and to this extent there is relationship of service provider and service receiver between the appellant and the foreign bank. In this regard, the appellant submits that the above cited contention of the impugned order in original is totally erroneous and is not backed by any authentic legal matter. On the contrary, the appellant submits that as they have not contacted the foreign bank and they not even know the identity of foreign bank, the relationship of service provider and service recipient is absent and it is the Indian bank who is the service receiver and is liable to pay service tax under the reverse charge mechanism. This submission is supported by a Trade Notice No. 20/2013-14-ST-I dated 10.02.2014 recently issued by the Mumbai Commissionerate wherein clarification was issued as regards service tax on bank charges/processing charges paid for import/export documents. It was stated in the trade notice that banks in India are providing services to their customers who may be exporters or importers. For the purpose of forwarding of documents and realisation of proceeds by way of receiving remittance in foreign currency or making payment in foreign currency, the banks in India have to obtain and utilise the services of foreign banks. It was explained including by IBA, that there is no written agreement between banks in India and foreign banks for providing the said services. In fact, in a typical case of export from India, the exporter submits the documents to a bank in India and the said bank in turn forwards these documents to a foreign bank, which may be the banker of the importer in the foreign country or it may be the intermediary bank, which may in turn contact the banker of the importer in the foreign country. The said banker of the importer and/or the intermediary bank in the foreign country charges certain amounts and normally these charges are recovered by them by deducting from the total amount to be remitted to the Indian exporter. Further, in the case of import transactions, where the Bank in India, at the request of the importer, issues an LC, foreign bank charges are paid to the Foreign Bank. The foreign bank and/or the intermediary bank, as the case may be, deal only with the bank in India, and they only correspond and transact with the bank in India and not with the exporter.  
 
It has been further held in the trade notice that a combined reading of the Articles of URC 522 and UCP 600 shows that there is an implied contract between a bank in India and a foreign bank, whereby, the foreign bank recognizes only the Bank in India for providing their services and for collection of their charges. In case of any clarification on any issue regarding their activity, there is always correspondence between the foreign bank and the bank in India. Even the amount of charges collected by foreign bank is informed only to the bank in India. The exporter or the importer in India comes to know about these charges through their own bank in India. In fact the most interesting aspect is that the importer or the exporter in India is not even aware of the quantum of charges which are charged by the foreign bank.Further, in case of export transactions, if the remittance could not be paid by the foreign importer, in that case the foreign bank recovers the charges from banks in India only and in case of import transactions, if the foreign exporter does not bear the foreign bank charges, the same are recovered by the foreign bank from the bank in India. The combined reading of the relevant articles in the said two internationally accepted conventions, undoubtedly show that services are provided by the foreign bank to the bank in India. Therefore, as per the Service Tax law, as a recipient of service, the bank in India, is required to pay Service Tax under erstwhile Section 66A of the Finance Act prior to 1-7-2012 and under the provisions of Notification No. 30/2012-S.T., dated 20th June, 2012 after 1-7-2012.
 
The Trade Notice also clarifies that the views of the banks that services provided by the foreign bank are received by the importer or exporter in India is not factually and legally correct because, for a person to be treated as recipient of service, it is necessary that he should know who the service provider is and there should be an agreement to provide service, which may be oral or written.In the present case, the importer and exporter does not even know who the service provider is, as they are not aware of the identity of the foreign banks which would be providing services. Exporter or importer in India does not have any formal or informal agreement with the foreign bank. Importer or exporter in India does not even know the quantum of charges which the foreign bank would be recovering. Therefore, in view of the above mentioned factual position and also in view of the various articles of URC 522/UCP 600, it is clear that services are provided by the foreign bank to the bank in India.
 
It is therefore clarified that, in cases where the foreign banks are recovering certain charges for processing of import/export documents regarding remittance of foreign currency, the banks in India would be treated as recipient of service and therefore required to pay Service Tax.
 
Furthermore, in the end it is also stated in the trade notice that all the banks are requested to follow the above mentioned clarification and to also pay tax for the past period.
 
In light of the above trade notice that has been recently issued by the Mumbai Commissionerate, there leaves no room for doubt that in case of transactions for export proceeds realisation, the Indian Bank avails the services of the foreign bank and the service tax on the bank charges/commission deducted by the foreign banks is required to be paid by the Indian bank under the reverse charge mechanism and the service tax liability cannot be fastened upon the exporter availing the services of Indian Bank. There is relationship of service provider and service receiver between the Indian bank and the foreign bank and the exporter has no role to play and cannot be considered to have avail the services of foreign bank so as to be liable for paying service tax under reverse charge mechanism. The appellant submits that it is the bank who is liable to pay service tax and not the exporter and so the service tax demand that has been confirmed against them is erroneous and deserves to be set aside as being devoid of any merits.
 
4)            Aligning with the above, it is also submitted that even when there is no doubt as regards the fact that Indian bank availing the services of foreign bank on their own account is the service receiver in the present case, even then, the revenue department is confused as regards the fact that who is the service recipient in the present case and is alleging exporter to be the service recipient and consequently the person liable to pay service tax under reverse charge mechanism. The demand has been confirmed on the basis of ambiguous allegations. In this respect, reliance is placed on the decision given in the case of Siddharth Tubes Ltd. Vs Commissioner of C. Ex., Indore [2008 (228) ELT 193 (Tri.-Del.)] that where there is any confusion amongst the department and assessee; the benefit of doubt should be extended to the assessees. Moreover, the service tax demand confirmed against the appellant is liable to be quashed when the Mumbai Commissionerate believes that Indian banks that avail the services of foreign banks for processing transactions related to import/export documents are liable to pay service tax under reverse charge mechanism both under pre-negative list and post-negative list service tax regime. As such, the impugned order in original is not sustainable and deserves to be quashed.
 
5)            Aligning with the above, the appellant submits that the clarifications issued by way of issuance of circulars/trade notices are binding on the departmental officers and they are bound to follow the circulars/trade notices. This view is supported by the decision given by the Supreme Court in the case of Collector of Central Excise, Vadodara vs Dhiren Chemical Industries [2002 (139) ELT 3 (SC)]. In this decision, hon’ble Supreme Court has held that the order passed by the revenue authorities in contravention to the clarifications given is void ab initio. In this case it was held as follows:-
 
“Departmental clarification - C.B.E. & C. Circulars binding on Revenue even if placing different interpretation then Supreme Court - Regardless of the interpretation that the Court have placed on the phrase “on which the appropriate amount of duty has already been paid”, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue - Section 37B of Central Excise Act, 1944.”
                 
The analysis of this decision makes it clear that while deciding any case, the Board Circulars are to be kept in mind. Similarly, the trade notice as relied upon by the appellant above which gives clarification on the issue that is prone to litigation should be followed and so the impugned order in original confirming the service tax demand by treating the appellant as service recipient and the person liable to pay service tax under the reverse charge mechanism should be set aside and the appeal should be allowed.
 
6)            The appellant also submits that from the above cited trade notice it is crystal clear that they are not service recipient and so are not liable to pay service tax on the bank charges paid to the foreign bank. As such, if at all the service tax demand is to be confirmed, the same should be confirmed against the Indian Bank and the demand has been erroneously confirmed against the appellant. In this regard, reliance is placed on the decision given by the Hon’ble Mumbai Tribunal in the case of KERSI KAPADIA VERSUSCOMMISSIONER OF CENTRAL EXCISE, MUMBAI-V [2006 (194) E.L.T. 30 (Tri. – Mumbai)]wherein it has been held that demand raised on wrong person is totally void and all the proceedings are liable to be set aside in entirety. The synopsis of the case is produced for the sake of convenient reference as follows:-
Manufacturer - Furniture - Chair, discussion table etc. - Architect supervising their making, designing, selecting carpenters, certifying quality etc. - However, payment for skilled/unskilled workers and materials made by person who contacted the architect and paid for his service - HELD : Relationship between contractor and architect was not that of principal and job worker, and architect was not manufacturer of furniture - Section 2(f) of Central Excise Act, 1944. [para 11]
Confiscation and penalty - Imposition of - Wrong person, who was not manufacturer of goods, made liable - HELD : Entire proceedings were vitiatedthough non-duty paid goods were liable to confiscation - Rule 173Q(1) of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 12]
 
In light of the above cited decision, as the service tax demand has been wrongly confirmed against the appellant instead of the Indian bank who is the service recipient, the impugned order in original should be set aside and the appeal should be allowed.
 
7)            Aligning with the above, in support of the submission that it is the Indian bank that is required to pay service tax under the reverse charge mechanism, it is better to appreciate the provisions as regards import of services. As per section 66A, a service shall be deemed to be provided by the service recipient if the following conditions as being satisfied:-
·         A taxable service specified in clause (105) of section 65 is being provided.
·         The service is provided by the person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India.
·         The service is received by a person who has his place of business, fixed establishment, permanent address or usual place of residence in India.
On perusal of the above provisions, it is submitted that all the conditions as stated above are being satisfied by the Indian bank with respect to the services availed from the foreign bank because the services received are taxable services under the category of “Banking and Financial Services”, the said services are provided by a bank having business establishment in a country other than India and is being received by Indian bank who has fixed business establishment in India. Hence, it is the Indian bank who is the service recipient that is deemed to have been provided the services of “Banking and Financial Services” and is the person liable to pay service tax under the reverse charge mechanism. On the contrary, the appellant was unaware of the identity and the nature of services provided by the foreign bank has availed the services from the Indian bank which charged them for certain charges on which appropriate service tax has already been paid by them. The appellant submits that they have availed services from the Indian bank that have fixed business establishment in India and are not governed by the provisions of section 66A. As the “banking and financial services” were provided by the Indian bank, the service tax paid by the appellant on the services provided by the Indian bank which ultimately remitted the service tax to the government exchequer. As such, the impugned order in original confirming erroneous service tax demand by resorting to provisions of section 66A on the appellant is liable to be quashed and the appeal should be allowed.
 
8)            In continuation to the above, it is also submitted that the above cited Trade Notice issued by the Mumbai Commissionerate is being followed in Mumbai and consequently the person liable to pay service tax under reverse charge mechanism is the Indian Bank that receives the services of foreign banks while processing the import/export transactions. The appellant submits that as the service tax is a central levy that is consistently implemented all over India, confirmation of service tax demand on them contrary to the clarification and practice followed in Mumbai would tantamount to discrimination between the similarly placed assessees. It is submitted that as the person liable to pay service tax under reverse charge mechanism is the Indian bank and not the exporter/importer, the service tax demand confirmed against appellant should be quashed and the appeal should be allowed.
 
In support of the contention that discriminatory approach is not justified for similarly placed assessees, reliance is placed on the decision given in the case of hon’ble Calcutta High Court in the case of FITWELL FASTNER (INDIA) PVT. LTD. VERSUS COLLECTOR OF CUSTOMS [1993 (68) E.L.T. 50 (CAL.)]. In this case it is held that the discrimination as between two assessees located in two different cities is unfair and improper and violative of Article 14 of Constitution of India. There cannot be discrimination between the assessee who are similarly placed and Department cannot take a different stand for different assessee. Reliance is also placed on the following case laws:-
 
·         DAMODAR J. MALPANI V. CCE [2002 (146) ELT 483 (SC)]
·         MALLUR SIDDESWARE SPINNING MILLS (P) LTD. VS. CCE [2004 (166) ELT 154 (SC)]
·         QUINN INDIA LTD. VS. CCE [2006 (198) ELT 326 (SC)]
·         SPL SIDDHARTHA LTD. VS CCE [2006 (204) ELT 135 (TRI.-DEL.)]
·         JAYASWALS NECO LTD. VS. CCE [2006 (195) ELT 142 (SC)]
·         FITWELL FASTNER (INDIA) PVT. LTD. VS CC [1993 (68) ELT 50 (CAL.)]
·         CCE VS. AMAR BITUMEN & ALLIED PRODUCTS PVT. LTD. [2006 (202)ELT 213(SC)]
·         INDIAN OIL CORPORATION LTD. VS CCE [2006 (202) ELT 37 (SC)]
·         CCE VS. TATA ENGINEERING & LOCOMOTIVES CO. LTD. [2003(158) ELT 130 (SC)]
·         BIRLA CORPORATION LTD. VS. CCE [2005 (186) ELT 266 (SC)]
Similar views has been held by the Hon’ble CESTAT in the case of COLLECTOR OF CENTRAL EXCISE, BANGLORE AND OTHERS VERSUS UNITED GLASS AND OTHERS [1987 (31) ELT 786 (Tribunal)] as follows:-
“Excise is an indirect tax, uniformity in valuation and assessment of the goods ought to be ensured so that different manufacturers producing similar goods in the country are not discriminated. With this object in view, it has been the practice of the Tribunal to respectfully follow the Judgment delivered by a High Court on particular issue so long as there is no contrary Judgment by another High court on the same issue. [para 10]”
In the light of above decisions, no discrimination is required to be made between the assessees placed under similar circumstances. As the service tax is also an indirect tax that is centrally levied, uniformity is required to be ensured among the assessees so that different practices are not followed that give rise to unnecessary litigation. Accordingly, when it has been accepted by the Mumbai Commissionerate that there is no service tax liability of exporter/importer as recipient of services of foreign banks and only Indian Banks are liable to pay service tax under the reverse charge mechanism, the same approach should be followed throughout the country and the service tax demand confirmed against the appellant should be quashed and the appeal should be allowed.
 
9)            In continuation to the above, in support of the contention that no service tax is leviable on exporter/importer under the reverse charge mechanism with respect to bank charges/commission deducted by foreign banks, reliance is also placed on the following recent judicial pronouncements:-
·         GREEN PLY INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX., JAIPUR-I [2009 (14) S.T.R. 505 (Tri. - Del.)]
Stay/Dispensation of pre-deposit - Import of Services - Banking and other Financial Services - Exporter availing services of bank to realise sale proceeds from foreign buyers - Demand for services rendered by foreign banks in relation to export transactions - Submission that contract/agreement between assessee and foreign bank absent and identity of foreign bank not known to assessee - Prima facie views of assessee agreeable - Pre-deposit waived and recovery stayed - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994 - Section 65(12) ibid. [paras 2, 3]
It is worth mentioning that recently the Hon’ble Delhi Tribunal has allowed the appeal with respect to above referred stay application vide Final order No. A/50149/2014/Cu (DB) dt.3.1.2014. The copy of the Order dated 03.01.2014 is enclosed herewith from page ______ to ______ of the appeal memorandum. The relevant portion of the Order is reproduced hereunder as follows:-
“4. We have considered the submissions and heard both sides and perused the records. We find that no documents has been produced showing that foreign bank has charged any amount from the appellant directly.  The facts as narrated in the impugned order clearly indicate that ING Vyasa Bank who had paid the charges to the foreign bank.  In view of this, the appellant cannot be treated as service recipient and no service tax  can be charged under Section 66A read with Rule 2 (24) of the Central Excise Rules. Moreover, we also find that  in appellants own case for the previous period  similar order has been passed by the original adjudicating authority and on appeal being filed before Commissioner (Appeals) who  vide his order in appeal dated 12.11.08 has set aside that order and as per the appellants counsel,  no appeal has been filed against that.  In view of this, the impugned order is not sustainable, the same is set aside and appeal is allowed.”
·         GRACURE PHARMACEUTICALS LTD. VERSUSCOMMISSIONER OF C. EX., JAIPUR-I [2013 (32) S.T.R. 249 (Tri. – Del)]wherein it has been held as follows:-
Stay/Dispensation of pre-deposit - Banking and Financial Services - Appellant exported goods through ICICI Bank and opened Letter of Credit for the purpose - Demand raised that certain services for collection was received from foreign banks and payments made to them and such payments on account of service was liable to duty as ‘Banking and Financial Services’ in the hands of the appellant - HELD : Prima facie services have been received by the appellant from ICICI Bank, who have collected and paid Service Tax on the transaction - Therefore, no service appears to have been received by the appellant from the foreign bank - Pre-deposit of Service Tax, interest and penalty waived till the disposal of appeal - Section 35F of Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of Finance Act, 1994 - Sections 65(12) and 65(105)(zm) of Finance Act, 1994. [para 5]
 
·         GUJARAT AMBUJA EXPORTS LTD. VERSUSCOMMR. OF C. EX., AHMEDABAD [2013 (30) S.T.R. 667 (Tri. - Ahmd.)]wherein it has been held as follows:-
 
Stay/Dispensation of pre-deposit - Service Tax liability under Reverse charge mechanism - Amount deducted by foreign bank while remitting payment to beneficiary i.e. assessee - HELD : LC produced to Indian Bank and payment made against impugned LC - Assessee not receiving any services from foreign bank for collection against LC - Prima facie, amount charged not to be considered as service received by assessee - Strong case for waiver of pre-deposit made out - Section 35F of Central Excise Act, 1944 as applicable to Service Tax vide Section 83 of Finance Act, 1994. [para 6]
 
·         M/S ASCENT FINE CHEM LTD. VS COMMISSIONER OF SERVICE TAX [2012-TIOL-980-CESTAT-AHM]:-
 
Service Tax - Banking and Financial Services - Amount deducted by foreign Bank - Stay / Dispensation of pre-deposit - Assessee submits that  the reason for deduction of certain amounts by the bank is not known  and it is not possible to identify whether amount was deducted for rendering any service or for some other reason. As the issue is complicated and requires consideration of statutory provisions and the banking practices, stay granted . (Para 6)
 
As the facts and circumstances of the above cited decision are very much similar to the present case, their benefit should be extended to the appellant and the impugned order in original should be set aside and the appeal should be allowed.
                       
10)         The impugned order in original has held that the payments have been made for collection of money from the buyer. It is alleged that the appellant has received services from two banks directly - One from the Indian bank entrusting them to render the services to forward the documents for collection and Second service has been availed for collection of the money from the buyer and to make payment to the appellant after deduction of agreed upon charges by the foreign bank to the Indian bank. In this regard, the appellant submit that they have availed the services of Indian bank only and they have not availed services of foreign bank. Merely because the Indian bank has availed services of foreign bank and the ultimate benefit of the services provided by foreign bank is related to them, it cannot be concluded that they have availed services of foreign bank. Moreover, the appellant were not even aware of the identity of the foreign bank from whom the services have been availed and accordingly, it cannot be presumed that they have availed services from two banks. The submission of the appellant is also backed by recently issued Trade Notice of Mumbai Commissionerate and a couple of decisions on the even issue. As such, the confirmation of service tax demand with respect to services availed by Indian bank from foreign bank is not sustainable on the appellant and the impugned order in original is liable to be set aside.
 
11)         The appellant had submitted in their reply to show cause notice that even if the service tax was paid by them, the same was admissible as Cenvat credit; thus, the situation was revenue neutral. However, this submission has not been accepted by the impugned order by contending that the law should be obeyed in toto and where the service tax is due the same has to be paid in time as per law. It has been alleged that the point of revenue neutral effect does not entitle any person to not to pay service tax thereby not to avail the credit.  In this respect, the appellant reiterate that in view of the submissions made in the above paragraphs it is clear that there was no service tax liability on the appellant as they have not received the services of foreign bank and rather Indian bank has received the services of foreign bank. Furthermore, as the appellant had not contacted any foreign bank and had only communicated Indian bank for realisation of their export proceeds, they were under the bonafide belief that they are not at fault because they had duly paid service tax on the services availed of the Indian bank. As such, nothing was suppressed from the revenue department at all. Moreover, the allegation of suppression is not at all sustainable because the fact that the appellant had paid bank charges/commission came to the notice of the department during the examination of the books of accounts and financial statements of the appellant. They submit that if at all there was any malafide intention to suppress the facts from the revenue department, they would not have cooperated with the revenue department. Moreover, the amount of bank charges paid is insignificant and there would be no gain to the appellant in not paying service tax with respect to the said charges when the amount of service tax paid by them would be admissible as credit which could be easily utilised by them in further discharge of their excise duty liability. Hence, the submission of revenue neutrality was made to justify the fact that there was no gain to the appellant in not discharging the service tax liability. The service tax was not discharged as they were under the genuine impression that they were not liable to pay service tax as the service recipient in the present case was Indian bank. As such, the impugned order in original has erred in concluding that service tax was evaded and there was suppression of facts because in reality, there was no suppression and rather there is no service tax liability. The appellant submits that if at all service tax is payable, the same is payable by the Indian bank being the service recipient and as such, the service tax demand confirmed by invoking the extended period of limitation is not tenable.
 
The appellant also submits that they concur with the contention of the impugned order in original that machinery and operative section of the law is must to enable assessment and enforcement and the law should be obeyed in toto. However, the impugned order in original has erroneously used the contention to justify the confirmation of service tax demand on the appellant. The appellant submits that they are law abiding assessees and have duly obeyed the statutory laws but the impugned order in original has confirmed the service tax demand without properly considering the provisions of the law. According to section 66A of the Finance Act, 1994 read with Rule 2 (1)(d)(iv) of the Service Tax Rules, 1994, the service tax is payable on import of services by the service recipient but the impugned order in original has confirmed the service tax demand under reverse charge mechanism on the appellant rather than the recipient of service, i.e., the Indian bank. As such, the appellant have complied with the provisions contained in the laws but the impugned order in original seeks to confirm erroneous service tax demand on them. Furthermore, the submissions of the appellant are also backed by Trade Notice issued by the Mumbai Commissionerate and a couple of decisions given by various tribunals on the even issue. Also, the appellant is law abiding assessee and has duly discharged their service tax liability under goods transport agency service which is also under reverse charge. Moreover, as the appellant is manufacturer, they are also capable of using the credit of service tax paid under the reverse charge mechanism in discharging their excise duty liability. Hence, there is no good reason for the appellant to not pay service tax as credit is admissible to them of the service tax paid. Therefore, the allegation of service tax evasion does not has force and is made for the sake of making it because there was genuine and bonafide reason of not paying service tax on the bank charges charged by the foreign banks. As such, the impugned order in original favouring imposition of penalties is not justifiable and is liable to be quashed and the appeal should be allowed.
 
 
12)         The appellant further submit that the impugned order is alleging that the extended period is rightly invoked in their case as fact of foreign bank commission came to notice of department only after audit of appellant. It has been alleged that the appellant was required to properly assess and pay the service tax in the regime of self assessment and since they failed to do so, the allegation of suppression is correctly charged on them. In this respect, it is submitted that in view of submissions made in the forgoing paras, it is ample clear that the appellant is not the recipient of service and the demand is incorrectly confirmed on them. Therefore, they were not required to pay any service tax under reverse charge mechanism. The allegation of suppression is also not tenable as deduction of commission on remittances received against export proceeds is a common phenomenon and it is applicable to all the remittances received from foreign buyers. Thus, this is a common expense of all the exporters. There are a number of exporters supervised by the same jurisdictional Central excise office of the appellant and majority of which are subject to departmental audit. Also, the departments is keenly monitoring the realization of export proceeds and in case of default, show cause notices are being issued. Thus, the procedure of export, receipt of foreign exchange against the export and expenses pertaining to it are very well within the knowledge of department. Since the deduction of foreign commission is also a common expense pertaining to all the exporters department was very well aware of the same right from the beginning. The general fact of an industry or trade which is already in knowledge of department cannot be suppressed by any one unit of that trade or industry. As such, the allegation of suppression of facts in the impugned order in original is totally misconceived. Also, where it is general practice of not paying the service tax on any transaction, it cannot be attributed to suppression of facts leading to invocation of extended period and imposition of penalty. In this regard, the appellant also wishes to place reliance on the decision given in the case of R. M. Dhariwal (HUF) vs Commissioner of C.Ex., Pune-II & III [2009 (242) E.L.T. 391 (Tri.-Mum)] wherein it was held that :-
 
“Demand - Extended period - Bona fide belief that Attars not chargeable to excise duty - Belief based on non-payment of duty by other Attar manufacturers - Awareness as to liability not attributable - Extended period not invocable - Section 11A of Central Excise Act, 1944. [para 25]”
 
The analysis of this decision makes it ample clear that the penal provisions and extended period is not available to department where there is general practice of not paying tax on any particular transaction. In the instant case, no exporter is paying the service tax on the alleged foreign bank commission. Therefore, extending the ratio of this decision, the impugned order deserves to be quashed.
 
13)         Aligning with the above, the appellant also wishes to place reliance on the decision given in the case of M/s Uniworth Textiles Ltd. vs Commissioner of Central Excise, Raipur [2013-TIOL-13-SC-CUS] whereby it was concluded that mere non- payment of duties is not equivalent to collusion or willful misstatement or suppression of facts and the burden of proof of proving malafide conduct lies with the revenue. Therefore, it is for the revenue to specify as to how the extended period of limitation is invokable and that there was malafide intention of the appellant to evade payment of tax. In this regard, the appellant have already proved in the forgoing paras that they are not the recipients of taxable service, rather it is the Indian bank which has received the same. Also, their view is supported by the trade notice issued by Mumbai Commissionerate. Further, the fact of foreign bank commission is a general phenomenon in course of export and all the exporters are bearing the same. Since this is a general practice of trade, the allegation of suppression does not survive here. Therefore, the appellant have well proved that there was no suppression of facts and even the impugned order has also failed to prove the otherwise, it deserves to be quashed and the appeal should be allowed.
 
14)         The impugned order has also distinguished the reliance placed by the appellant on the judgement of the Hon’ble Delhi Tribunal in the case of M/s Green Ply Industries Ltd. Vs CCE, Jaipur-I cited in 2009 (14) STR 505 (Tri.-Del) wherein the Tribunal has held that prima facie the views of the assessee is agreeable, wherein it was submitted that contract/agreement between assessee and foreign bank is absent and identity of foreign bank is not known to the assessee. The order has rejected the reliance placed on the case on the ground that this is not the similar case as LC is opened with the consent of the appellant by the buyer. In this regard, the appellant submits that the impugned order in original seeks to distinguish the above cited case for the sake of distinguishing it. It is submitted that the reason for rejection of the reliance placed on the above cited case is that in the present case LC is opened with the consent of the appellant by the buyer. The appellant submit that always LC is opened with the consent of both the parties and such an absurd ground for rejection of reliance placed on the above cited decision is totally unsustainable. In order to understand the applicability of the above cited case, it is better to analyse the meaning of letter of credit. A letter of credit is a letter issued by one bank to another bank (usually situated in a different country) to serve as a guarantee for payments made to a specified person under specified terms and conditions. A letter of credit is a very common tool to secure receipt of payments in case of export of goods and the letter of credit is being opened by the importer so as to guarantee the exporter that the payment for goods that are exported by the exporter would be timely received by exporter. As the parties that are involved are importer, importer bank, exporter and the exporter’s bank, the consent of the exporter is taken as regards the terms and conditions of the letter of credit. The letter of credit has become an important aspect of international trade, due to differing laws in each country and the difficulty of knowing each party personally. The bank also acts on behalf of the buyer, or holder of the letter of credit, by ensuring that the supplier will not be paid until the bank receives confirmation that the goods have been shipped. The letter of credit is issued on the basis of policy of Import and Export and RBI directives. The letter of Credit is procedural formality to guarantee that the sales proceeds from foreign buyers would be realised as in a transaction of export, the parties are not familiar with each other and the credit worthiness of each other. As such, the letter of credit has no connection with the fact that the exporter has availed the services of foreign bank for realisation of export proceeds because the exporter actually communicates the Indian bank which provides the services of actual realisation of export proceeds in the foreign convertible currency. It is the Indian bank which avails the services of foreign bank in order to actually realise the export proceeds and mere opening of letter of credit by the importer would not tantamount to the exporter availing the services of the foreign bank for realisation of the export proceeds. Moreover, the transaction of letter of credit pertains to foreign bank giving guarantee for payment of export proceeds on behalf of the importer and it does not means that by executing the letter of credit, the exporter would receive the export proceeds sup motto without even availing the serviced of Indian bank. The impugned order is attempting to mix the two separate transactions, one of executing letter fo credit to guarantee the receipt of payment and the other is the actual realisation of the export proceeds. The appellant submits that the actual realisation of export proceeds is being concluded by the Indian bank by availing the services of foreign bank on its own account and is entirely different from the transaction of execution of letter of credit. Merely because of the fact that the foreign bank that issues letter of credit is the same in most of the cases which is contacted by the Indian bank for realisation of the export proceeds cannot lead to conclusion that the exporter has availed the services of foreign bank for realisation of export proceeds and is the person liable for paying service tax under reverse charge mechanism. It is also submitted that in the course of availing the services of Indian bank, certain service charges are charged from the Indian bank from the exporter for which service tax is also charged from the exporter. The appellant submits that they are only liable to pay the service tax charged from the Indian bank for the services availed from them and nothing more than that. Further, if the Indian bank avails the services of the foreign bank in order to provide services to them, the liability to pay service tax under the reverse charge mechanism is casted on the Indian bank and not on the exporter. 
 
In the present case, as there is no contract/agreement between appellant and foreign bank and in fact they do not know identity of foreign banks and therefore it is not correct to say that the exporter is receiving services from foreign bank. The appellant submits that the facts and circumstances of the above cited case are exactly similar to the present case and so the appeal should be allowed by extending the benefit of the above case to the appellant also. It is submitted that the impugned order in original that is rejecting the reliance placed on the above cited case on absurd and improper reasoning should be set aside.
 
15)         The impugned order is alleging that the appellant is aware of the fact that the foreign bank charges are being deducted from his export realization and they have not taken any objection against this from the date of contract/sales negotiation with the foreign buyer, which means they have agreed with this contract of bank charges deduction by foreign bank from their export realisation. In this respect, the appellant submits that merely because of the fact that the bank charges charged by the foreign bank are being recovered from them by the Indian bank, it cannot be presumed that appellant are service recipient of the services provided by the foreign bank. The appellant submits that it is common for any service provider to charge the service recipient for all the expenses incurred by it in providing the services to the service recipient. The appellant submits that as the Indian bank avails the intermediary services of foreign bank so as to effectively realise the export proceeds to the appellant, the bank charges incurred by the Indian bank are also recovered by the Indian bank from the appellant but this cannot lead to conclusion that the appellant is the service receiver of the services provided by the foreign bank because the appellant neither knows the identity of the foreign bank nor is aware of the nature and scope of services provided by the foreign banks to the Indian banks. When there is no contract between the appellant and the foreign bank and no relationship of service provider and service receiver, liability of service tax cannot be casted on the appellant under the reverse charge mechanism. It is also worth observing that the fact that there was no objection on the deduction of certain amount from the export realisation is due to the reason that the appellant has availed the services of Indian bank and they are well aware that certain service charges would be deducted from the Indian bank in lieu of the services provided to the appellant. Moreover, in the credit advice of the Indian bank, the appellant is informed of the amount realised after deduction of certain service charges by the Indian bank. The appellant bonafidely presumes that such charges are the service charges deducted by the Indian bank for the services provided by them and is not aware of the exact bifurcation of the said charges. The amount of charges pertaining to those deducted by the foreign bank is nowhere specifically mentioned in the credit advice issued by the Indian bank which indicates the appellant that certain services of foreign bank were being availed for which certain charges were charged. For example, if the appellant is to receive 10000 US $ and in the Foreign Inward Remittance Certificate (FIRC), the amount mentioned to their credit as amount realised is Rs. 9985 US $, it is deemed that 15$ is the processing charges of the Indian bank. The appellant is not aware as to how much amount out of 15 $ pertains to bank charges paid to the foreign bank. As such, when it is not possible for the service recipient to bifurcate and compute its service tax liability under the reverse charge mechanism, the allegation of non-payment of service tax cannot be confirmed against them. On the contrary, the service recipient, i.e., the Indian bank is in better position to compute the service tax on the bank charges as it is the person who avails the service of the foreign bank and is also liable to pay service tax under reverse charge mechanism. As regards the liability under reverse charge mechanism is concerned, it has been explained in detail in the preceding paragraphs that as the services have been availed by the Indian bank, the person liable to pay service tax is the Indian bank and so the demand has been erroneously confirmed against the appellant. Moreover, when clear cut clarification has been issued in the matter, the impugned order in original confirming service tax demand against the appellant along with interest and penalty is void and should be set aside. 
 
16)         The impugned order further states that the Commissioner (Appeals), Rajkot’s OIA No. 354/2010/COMMR(A)/CMC/RAJ dated 03.08.2010 in the case of M/s Maruti Interior Products P. Ltd., Rajkot, the department has not accepted the said order and has appealed in the Hon’ble CESTAT, Ahmedabad. On verification of the CESTAT website dated 24.01.2014, the case is still pending. In this regard, the appellant submits that reliance placed on a particular decision cannot be merely denied on the ground that appeal has been filed in the higher appellate forum. The appellant submit that mere filing of appeal by the revenue department against the order in appeal cannot be a ground to deny applicability of the said decision.  They submit that an order of authority ought to be followed and implemented and mere filing appeal against the said order cannot be a ground to prohibit the implementation of the said order. As such, the impugned order in original confirming the service tax demand along with interest and penalty is totally absurd and baseless and deserves to be set aside. In support of the contention that mere filing of appeal cannot be a ground for non-complying with the order passed by any authority, reliance is placed on the Apex Court judgement given in the case of Union of India Vs Kamalakshi Finance Corporation Ltd. [1991 (55) E.L.T. 433 (SC)] wherein it was held as follows:-
The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the department - in itself an objectionable phrase - and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws. [para 6]
Therefore, in light of the above decision of the Supreme Court, the rule set by higher formations is always binding on the lower formations irrespective of their personal views. Even mere filing of appeal cannot be a ground not to accept the decision of the higher authority. Hence, extending the ratio of the above decision, the impugned order in original should be quashed as devoid of merits.
 
 
17)         The impugned order has also denied the applicability of various citations quoted by the appellant on the imposition of penalty. It has been held that the citations pertain to different situations and different law and are mainly of mis-declaration and so are not applicable in the present case because penalties have been imposed due to suppression in the present case. Moreover, penalty under section 77 is for not registering the services which require the payment of service tax and so has been rightly imposed. In this respect, the appellant submits that the allegation of suppression of facts with intention to evade service tax has been clearly denied and distinguished in the preceding paragraphs and so the penalty is not imposable on the appellant. As regards confirmation of penalty under section 77 is concerned, the appellant submits that as they are not the correct person liable to pay service tax under reverse charge mechanism and the service tax was liable to be paid by the Indian bank, they have correctly not taken registration for making payment of service tax under the category of “Banking and Financial Services”. They submit that as they have acted well within the boundaries and provisions of law, they cannot be penalised for act that they were not required to do. Therefore, the impugned order in original imposing penalty under section 77 is illegal and deserves to be quashed at the outset. The appeal should be allowed. 
 
18)          As regards imposition of penalty under section 78 of the Finance Act, 1994 the impugned order has held that penalty under this section is imposable where the short payment of tax is due to fraud, collusion, wilful misstatement of facts and contravention to the provision of Act or rules framed thereunder with intend to evade tax payments. In the present case, as the appellant has not disclosed full, true and correct value of the taxable services provided by them and that has come to the knowledge of the department only during the course of audit conducted by the department. Thus, it was held that the appellant have suppressed the material facts to the department with intend to evade payment of service and so they are liable for penalty under section 78 of the said Act. In this regard, it is reiterated that there was no suppression of facts by the appellant and that no penalty is leviable on them under section 78 because they are not liable to pay service tax under reverse charge mechanism. Moreover, the very basic allegation required to invoke the extended period, i.e. suppression of facts with an intention to evade payment of duty has not been proved as the foreign bank charges were reflected in the profit and loss account and balance sheet which are publicly available and are easily accessible. It was held in the case of Rainbow Industries v/s. CCE [1994 (74) ELT 3 (SC)] that for invoking the extended period, two ingredients are essential – (i) Willful suppression, mis-declaration, etc. and (ii) Intention to evade payment of duty. In absence of both of these extended period cannot be invoked. This has also been held in the case of Chemphar Drug & Limits reported in (2002-TIOL-266-SC-CX) wherein hon’ble Supreme Court held as under:-
 
“Demand – Central Excise – Limitation –Invoking extended period of five years – something positive other than mere inaction or failure on part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.”
 
Thus, in the light of above decision, extended period cannot be invoked blindly in every case. Where the assessees have been acting in the boundaries of law, the extended period cannot be invoked. Similar decision is given in the following cases:-
·          Pushpam Pharmaceuticals Company Vs. CCE, Mumbai reported in ( 2002-TIOL-235-SC- CX )-
 
·         NESTLE INDIA LTD. Versus COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH [2009 (235) E.L.T. 577 (S.C.)]
In view of above decisions, it is ample clear that the extended period cannot be invoked without proving the suppression of facts and intention to evade payment of service tax. Since it is the case of revenue neutrality, it cannot be said that there was any intention to evade payment of service tax or suppression of facts. Therefore, the extended period cannot be invoked in view of above cited decisions and consequently, no penalty can be imposed under section 78 of the Finance Act, 1994. Hence, the impugned order in original is not tenable and is liable to be set aside.
 
19)         The appellant submit that apart from the above submissions, most of the submissions made by the appellant in their reply to the show cause notice have not been considered while passing the impugned order in original. The said submissions are reproduced herein below and also form part of the grounds of appeal.
Ø  It was submitted that even if it is accepted for the sake of argument also that the service tax is payable by them on the alleged commission deducted by the foreign bank, then too, they are eligible to avail the credit of service tax so paid. Hon’ble Tribunal has allowed the credit of the service tax paid on banking and financial services in the following cases:-
·         COMMISSIONER OF CENTRAL EXCISE, SURAT-II VERSUS VISHAL MALLEABLES LTD. [2013 (287) E.L.T. 234 (Tri. - Ahmd.)]
Cenvat - Input service - Bankcommission charges for collection of sale proceeds of export goods - They are charges in relation to business of manufacture and sale of assessee - They are input service on which credit could be taken by assessee - Department’s plea that service was rendered beyond place of removal, rejected - Rule 2(l) of Cenvat Credit Rules, 2004. [paras 6, 7]
·         JSW STEEL LTD. Versus COMMISSIONER OF CENTRAL EXCISE, THANE-I [2012 (281) E.L.T. 582 (Tri. - Mumbai)]
Cenvat - Input services - Clearing, material handling, terminal handling, aviation, bankcommission and commission on export sales - Services availed by exporter during course of export of goods - HELD : Services were for clearance of goods from factory - They were all availed in course of business of manufacturing and within ambit of ‘input service’ - In that view, exporter was entitled to credit of Service tax paid on them - Denial of same on ground that exporter had not disclosed availment of Cenvat credit on these services beyond place of removal, rejected - Rule 2(1) of Cenvat Credit Rules, 2004. [paras 4, 5]
The analysis of the above cases makes it ample clear that even if the service tax is paid by them, its credit can be availed. Thus, the situation is revenue neutral as the service tax so paid is available as Cenvat credit. In the cases of revenue neutrality, the demand is not tenable and the extended period cannot be invoked.
Ø  It was further submitted that in the cases of revenue neutrality; the extended period is not invokable and demand is not sustainable. Reliance was placed on the following cases in this regard:-
·         MAFATLAL INDUSTRIES LTD. Versus CCE, DAMAN [2009(241)ELT-153 (Tri.-Ahmd)] :
 
Demand - Valuation (Central Excise) - Non-inclusion of notional profit for clearance to another unit of assessee - Another unit taking credit of duty paid - Revenue neutrality - Since differential duty demanded from assessee is available as credit to his own unit, who was in a position to utilize same, issue basically taking out money from one pocket and putting the same in another pocket of same person - It was only for procedural and technical purposes that duty was required to be paid at time of clearance from assessee’s unit - Entire demand being available as credit to another unit, demand of same is not justified - Sections 4 and 11A of Central Excise Act, 1944. [paras 4, 5]
THIS CASE WAS MAINTAINED IN SUPREME COURT AND WAS CITED AT [2010 (255) ELT A77 (SUPREME COURT)]
·         SUPER FORGINGS & STEEL LTD. Versus COMMISSIONER OF C. EX., KOLKATA-IV [2007 (208) E.L.T. 153 (Tri. - Kolkata)]
 
Demand - Limitation - Non-filing of declaration under Rule 173C of erstwhile Central Excise Rules, 1944 - Revenue neutrality - Transfer of goods from one unit to another - Even if valuation was adopted on lower side at the time of clearance from Dankuni Factory, it not leads to any gain to company - Non-filing of declaration under Rule 173 ibid not attributing any intention to evade payment of excise duty - Demand for larger period of limitation and equal amount of penalty under Section 11AC  of Central Excise Act, 1944 not sustainable - Section 11A ibid. [para 4]
 
THIS CASE WAS MAINTAINED BY SUPREME COURT AND WAS CITED AT [2007 (212) ELT A151 (Supreme Court)]
·         MRF LIMITED Versus CCE, HYDERABAD [2004 (170)ELT-69)  :
 
Remand - Differential duty - Valuation (Central Excise) - Captive consumption - Duty demanded on ground that intermediate products cleared to appellants other unit without including overheads namely advertisement, interest, etc. - Appellants filed cost account certificate based on instructions available at that time - C.B.E. & C. Circular No. 258/92/96-CX., dated 30-10-1996 providing for inclusion of such charges was not in force at that time - Whatever duty appellants were paying at the manufacturing unit of intermediate goods, the same has been taken as credit by other unit where these goods taken for manufacture of finished products - No evidence found that appellants had an intention to evade the payment of duty - Impugned order set aside - Section 11A of Central Excise Act, 1944. [para 4]
 
·         P.T.C. INDUSTRIES LTD. Versus CCE, JAIPUR-I [2003(159)ELT-1046 (Tri.-Del.)] :
 
Demand - Differential duty - Revenue neutrality - Sale of goods by one unit to another unit of same assessee under Modvat Scheme - Whatever duty paid in one unit is available in the next unit - Issue is revenue neutral - In case the assessees were to pay the differential duty, the same amount would be available as credit in the second unit for utilisation for payment of duty on goods manufactured there - Demand unwarranted - Section 11A of Central Excise Act, 1944. [para 4]
In the above referred cases, it was held that the demand, interest and penalty are not sustainable when the duty demanded is available as cenvat credit. Though these decisions pertain to Central Excise law, yet, their ratio is equally applicable to their case as the service tax alleged to be paid is available as Cenvat Credit to them. Therefore, this is also a revenue neutral situation in which the demand is not sustainable. In view of these decisions, the impugned show cause notice is liable to be set aside.
Ø  It was submitted that the analysis of section 78 makes it clear that no penalty can be imposed under Section 78 of the Finance Act, 1994 if there was no willful suppression or intention to evade payment of service tax on the part of the assessee. The impugned show cause notice has not been able to clearly establish that any of these elements were in existence in their case. On the other hand, they have proved their bonafides as categorily discussed hereabove. It is submitted that when no such element was there, the penalty under Section 78 of the Act is not required to be imposed on them. It has been held in the case of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)] that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation. It is further held in the case of Orient Ceramics and Industries [1987 (32) ELT 218 (I)] that words ‘with intent to evade payment of duty’ are very significant and unless and until the intention to evade payment of tax is proved on part of assessee, no penalty can be imposed. Similar view has been taken by hon’ble High Court in the following case:-
 
·         Commissioner of Central Excise v/s ESS ESS Engineers [2011 (23) S.T.R. 3 (P & H)]:-
 
“The High Court observed that the Tribunal had held that short payment was mainly due to the appellant’s understanding that they were not liable to pay service tax on fabrication and dismantling charges. As regards penalty under Section 78 is concerned, the same is imposable in a case where service tax has not been levied or paid or has been short levied or short paid or erroneously refunded, by reason of fraud; or collusion; or willful misstatement; or suppression of facts; or contravention of any of the provisions of this Chapter or of the rule made thereunder with intent to evade payment of service tax. It was noted that the fact of non-payment of service tax was discovered during the course of audit.

 The High Court held that the submission of Revenue that appellant was guilty of mis-declaration was not acceptable as the Tribunal had given a finding of fact that assessee did no have requisite mens rea to evade payment of service tax. The assessee had duly paid the service tax with interest and also made full and true disclosure in the return. The finding of fact of Tribunal was not shown to be perverse in any manner. Hence no question of law arises.”
 
Thus, mens rea is an essence of invoking the penal provisions. Reliance is also placed on the following judgments:-
 
·         2010 (258) ELT 465 (SC) – Sanjiv Fabrics
·         2007 (207)  ELT 27 (P &H) – UT Ltd
·         2007  (5) STR 251 (P & H) – Kamal Kapoor
·         2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills
·         2009 (238) ELT 209 (P&H) – J. R. Fabrics
·         2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings
·         2008 (228) ELT 31 (Del) – K. P. Pouches
 
In view of these judgments, no penalty can be imposed unless mens rea or intention to evade payment of duty/service tax is proved. In the instant case, the credit of service tax alleged to be paid was available to them, therefore, the intention to evade payment of service tax cannot be alleged. Also, the impugned show cause notice has not otherwise proved the malafide intention; therefore, in view of these judgments the impugned show cause notice is liable to be quashed.
20)         With reference to submissions made herein para no. (19) above, it is submitted that these are the submissions that were made before learned adjudicating authority in the reply to the show cause notice. However, none of these submissions have been discussed and distinguished by the learned adjudicating authority while passing the impugned order in original. Thus, the order has proved to be a non-speaking and non-reasoned order which is not sustainable in the light of following decisions:-
·         M/s Ashbee Systems Pvt Ltd v/s CCE, Delhi [2011-TIOL-181-HC-DEL-CX]
·         UoI Vs M/s V E Commercial Vehicles Ltd [2011-TIOL-68-SC-CX]
·         CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]
In the light of above cited decisions, an order passed without discussing the submissions and decisions cited by the appellant is not sustainable. In the instant case also, the impugned order in original has not discussed the decisions as well as other submissions given by the appellant, as such it has proved to be a non speaking and non reasoned order which has wrongly confirmed the service tax demand along with interest and penalties against them. Such an order is not sustainable as it is a non speaking order and is liable to be quashed. The appeal should therefore be allowed. 
 
Reasoning adopted by the Commissioner Appeals: -  The appellate authority has carefully gone through the case records i.e. Show Cause Notice and the submissions made in the written replies of the assessee and the case laws cited by them.
The limited issue to be decided in present appeal is that whether, the impugned order confirming the demand of service Tax under Section 73(1) of the Act, alongwith interest under Section 75 of the Act & imposition of penalties under section 77 & 78 of the Act, is proper or otherwise.
On going through the documents available on records, it was observed that the service was being provided by the foreign bank to the overseas customer or the Indian bank  and no service charge was being deducted from the foreign bank under any agreement from the appellant. The appellant had narrated the normal practice of heir export realization, according to which, they avail the service from India based bank which forwards the export documents to the foreign bank as per the terms of Letter of Credit for realization of export proceeds to their account. During this transaction, the foreign bank remits the Export Proceeds at prevalent foreign Exchange rate after deducting their service charges to the exporter’s Bank in India. The appellant therefore contended that when there is no payment made to foreign bank, no question of payment of service tax arises. The appellant further contended that they were paying service Tax to Indian banks towards services rendered by them in FOREX transactions. The Commissioner Appeals found merit in argument of appellant. It was found that Board in its Circular No. 163/14/2012-ST dated 10.07.2012 has adequately clarified on above situation, which reads as under:
“2. The matter has been examined and it is clarified that there is no service tax per se on the amount of foreign currency remitted to India from overseas. In the negative list regime, ‘service’ has been defined in clause (44) of section 65B of the Finance Act 1994, as amended, which excludes transaction in money. As the amount of remittance comprises money, the activity does not comprise a ‘service’ and thus not subjected to service tax.
“3. In case any fee or conversion charges are levied for sending such money, they are also not liable to service tax as the person sending the money and the company conducting the remittance are located outside India. In terms of the Place of Provision of Services Rules, 2012, such services are deemed to be provided outside India and thus not liable to service tax.”

It was further noted that Trade Notice No. 20/2013-14 ST. dated 10.02.201 has been issued by commissioner, S-Tax-I, /Mumbai, wherein it has been clarified that as per service Tax Law, as a recipient of Service, the bank in India, is required to pay service tax under erstwhile Section 66A of the Act, prior to 01.07.2012 and under provisions of Notification No. 30/2012-St dated 20.06.2012. Thus, it is amply clear that bank in India is liable to pay the  Service Tax in such transactions. Further, he relied upon following citations:
·         Gracure Pharmaceuticals Ltd. 2013(32) STR 249 (Tri-Del)
·         Gujarat Ambuja Exports Ltd 2013 (30) STR 667 (Tri-Ahmd)
The above Case Laws are squarely applicable in present case.
It was further found that the foreign bank deals only with the bank in India, and they only correspond and transact with bank in India and not with the exporter. The correspondence is only between the foreign bank in India. Even the amount of charges collected by the foreign bank is informed to the bank in India. The exporter or the importer in India comes to know about these charges through their own bank in India. The exporter is not aware of the quantum of such charges charged. The combined reading of relevant articles in the said two internationally accepted conventions show that service are provided by the foreign bank to the bank in India. Therefore, as a recipient of service, the bank in India is required to pay Service Tax.
In view of above discussion, it was held that the appellant were not required to pay service tax. As the entire demand of Service Tax was not leally tenable, the question of levy of interest and imposition of penalties under section 77 & 78 respectively doesn’t arise & accordingly same are required to be set aside.
In the view of above facts, discussions and finding, the appeal filled by the appellant was allowed and the impugned order passed by the lower adjudicating authority was set aside.
 
Decision:-Appeal Allowed.
 
Conclusion:-The gist of the case is that for a transaction to be leviable to service tax, there is necessity of relation of service provider and service recipient. In the present case, the exporter assessee contacted Indian Bank for realisation of export proceeds. The Indian Bank further availed the services of the foreign bank for facilitating realisation of export proceeds and consequently, the foreign bank charged certain commission from Indian Bank which was ultimately recovered from the assessee exporter. The service tax department caught the assessee exporter to discharge service tax liability under reverse charge mechanism whereas the assessee exporter was unaware of the identity of the foreign bank. There were no correspondences between the assessee exporter and the foreign bank and it was the Indian bank that transacted with the foreign bank. Therefore, it was concluded that the service recipient of the services provided by the foreign bank was Indian bank and not the assessee exporter. Merely because the assessee exporter was the beneficiary of the transaction entered between the Indian bank and the foreign bank, it cannot be concluded that the assessee exporter availed the services of the foreign bank and was liable to pay service tax under the reverse charge mechanism. It is worth noting that inspite of clear cut Trade Notice on the issue that in transaction of export proceeds realisation, it is the Indian Bank who is the service recipient, the service tax demand was raised and confirmed against the appellant which clearly reflects the litigation friendly attitude of the revenue department.