1. All the appeals involve a common issue, hence they are heard together and are disposed by this common order.
2. Brief facts are that the appellants who are manufacturers and exporters of knitted readymade garments have been receiving the sale proceeds of exports remitted by the foreign purchaser in the bank located in the foreign country and thereafter collected and remitted to the appellants account through the Indian bank. The department was of the view that the foreign bank has been providing taxable service from a non-taxable territory to the appellant which is located in taxable territory for which the appellant as a service recipient is liable to discharge service tax under reverse charge mechanism. Since the appellants have not paid service tax allegedly being paid to the foreign bank, show cause notices were issued for different periods. After adjudication, the original authority conf
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irmed the demand along with interest and imposed equal penalty under section 78 apart from imposing penalty of Rs. 10,000/- under section 77 sub-clause (i)(a) for failure to take registration and a penalty of Rs. 10,000/- under section 77 sub-clause (i)(b) for non-filing of returns. Being aggrieved, they filed appeals before Commissioner (Appeals) who upheld the same. Hence these appeals.
3. On behalf of the appellants, Ld. Counsel Shri J.V. Niranjan submitted that the authorities below had failed to appreciate the question of law and the facts involved in the correct perspective. He explained that it is undisputed that foreign buyers remitted money in foreign currency in their bank overseas and the payments were received in India with the bankers of the appellants. The foreign banks thus while paying the amount to the Indian bank deducts a small amount as charges. Similarly, when the Indian banks pay the amounts to the appellant, charges are deducted. The department is of the view that the appellant has to pay service tax on the amounts deducted/retained by the foreign bank on the pretext that the foreign bank is rendering service to the appellants. He contended that the foreign bank does not provide any service to the appellants and the foreign bank is a bank chosen by the buyer of goods to remit the sale proceeds. The appellant has no say in choice of the foreign bank and the remittances made by the foreign purchasers. On the portion of the charges deducted by the Indian bank while payment is made to the appellant, the appellant has discharged service tax and there is no dispute in this regard. Since there is no relationship of service provider and service recipient between the foreign bank and the appellant, the charges deducted by the foreign bank wile transferring the proceeds to the Indian bank cannot be considered as consideration paid to foreign bank for the purpose of levy of service tax under reverse charge mechanism. He also argued on the issue of limitation and submitted and all such documents were available as part of the accounts and that the appellant had not paid service tax only on bona fide belief that the said amount is not liable to service tax. As there is no suppression of facts, extended period is not invokable. Ld. Counsel relied upon Trade Notice No. 20/2013-14-ST-I dated 10.2.2014 and submitted that the Board has clarified the said issue and stated that the said charges deducted by the foreign bank is not subject to levy of service tax at the end of the exporter/manufacturer. He also relied upon in the case of Greenply Industries Ltd. Vs. Commissioner of Central Excise : 2015 (38) STR 605 (Tri. Del.).
4. Ld. AR Shri S. Govindarajan reiterated the findings in the impugned order. He argued that in respect of imports made by appellants to buyers located abroad, appellants were paying banking charges to the respective banks stationed abroad as evident from the accounts furnished by the appellant. These banks stationed abroad deducted charges from the sale proceeds of the exports effected by appellants in order to transfer the foreign exchange to the account maintained by appellant in a bank in India. Such amounts deducted by the foreign bank are a consideration paid by appellant for the services rendered by the foreign bank while transferring the sale proceeds. Therefore, foreign bank having been providing taxable services to the appellant for which appellants are service recipients are liable to discharge service tax on banking and other financial services under reverse charge mechanism. Further, such short-payment would not have come to light but for the verification conducted by the department and therefore the extended period invoked is right and proper. He relied upon the decision in the case of Lupin Ltd. Vs. Commissioner of Central Excise : 2015 (39) STR 249.
5. Heard both sides.
6. The case of the department is that when the foreign bank deducts the charges towards transfer of foreign exchange to the Indian bank, since the same is deducted from the sale proceeds, it is a service rendered by the foreign bank to the appellants and that there is a service provider and service recipient relationship between the foreign bank and the appellant. It is to be noted that the foreign bank deducts such charges and transfers the foreign exchange to the Indian bank from where the appellant receives the money. The foreign bank in which the overseas buyer deposits the sale proceeds is chosen by the foreign buyer and not by the appellant, who is situated in India. By no stretch of imagination can such foreign bank be considered as a service provider for the appellant who in most cases would not even be aware of the identity of such foreign bank. The act of deduction of an amount as charges for transfer of the foreign exchange to the Indian bank from the sale proceeds of the appellant is only a facility for collecting such charges from the Indian bank. This cannot be considered as payment of charges for services by the appellant to the foreign bank. It is actual charges deducted being bank to bank transaction. The department by the Trade Notice dated 14.2.2014 has clarified the very same situation. The relevant portion is extracted as under:-
5. 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. Further, Tribunals have also prima facie held that in such cases, services are provided by the foreign bank to the Indian bank and not to the Indian Exporter. [M/s. Gracure Pharmaceuticals Ltd. v. Commissioner of Central Excise, Jaipur-I : 2013 (32) S.T.R. 249 (Tri.-Del.), M/s. Gujarat Ambuja Exports Ltd. v. Commissioner of Service Tax, Ahmedabad : 2013 (30) S.T.R. 667 (Tri. Ahmd.)].
Similar issue was considered by the Tribunal in the case of Greenply Industries Ltd. (supra). The relevant portion is reproduced as under:-
5. We have considered the submissions from both sides and perused the records. We find that no documents have 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 it is the 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 from them under Section 66A read with Rule 2(1)(2)(iv) of the Service Tax Rules, 1994. Moreover, we also find that in Appellants own case for the previous period similar order had been passed by the original adjudicating authority and on appeal being filed against the same, the Commissioner (Appeals), vide order-in-appeal dated 12-11-2008 has set aside that order and as per the appellants counsel, no appeal has been filed against that order. In view of this, the impugned order is not sustainable. The same is set aside and the appeal is allowed.
7. We have to say that the decision relied upon by the Ld. AR in the case of Lupin Ltd. (supra), was rendered on 12.2.2013 which is much before the clarification issued by the Trade Notice and also the decision in the case of Greenply Industries (supra). Therefore, following the judicial discipline in the case of Greenply Industries (supra), and the facts being identical, the levy of service tax is unsustainable. The impugned orders are set aside and the appeals are allowed with consequential relief, if any