Case Law Details
Annur Cotton Mills Vs Commissioner of GST & Central Excise (CESTAT Chennai)
The appeal before the CESTAT Chennai arose from a dispute concerning the levy of service tax under the Reverse Charge Mechanism (RCM) on bank charges recovered by foreign banks in connection with export transactions undertaken by the appellant. The appellant, engaged in activities involving receipt, processing, and return of goods between its units, had initially operated under the 100% Export Oriented Unit (EOU) Scheme until 9 June 2011, after which both units functioned as Domestic Tariff Area (DTA) units following de-bonding.
In relation to export transactions, the appellant realised export proceeds from foreign buyers through banking channels involving both Indian banks and foreign banks. The Revenue took the view that the charges recovered by foreign banks for services rendered in these transactions constituted taxable services under the category of “Banking and Financial Services” (BFS). Since the appellant was considered the recipient of such services, it was alleged that service tax was payable under the Reverse Charge Mechanism. A show cause notice dated 6 March 2024 was issued proposing recovery of the tax demand. The adjudicating authority confirmed the demand through Order-in-Original dated 6 April 2016, and the Commissioner (Appeals) upheld the order through Order-in-Appeal dated 2 March 2017.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief relevant facts as could be gathered from a perusal of Order-in-Original and Order-in-Appeal are that the Appellant who is rendering transport of goods by road services, would receive Grey Terry Towel from their main unit viz. M/s.Annur Cotton Mills at Annur for bleaching and dyeing and after processing the goods are returned to their main unit. The unit at Annur was working under 100% EOU Scheme upto 09.06.2011 and the unit at Mettupalayam is an additional location and from 10.06.2011 onwards both these units started working as DTA unit after de-bonding.
2. In respect of foreign transactions the Appellant would realize export proceeds from its foreign buyers, such transactions with the foreign customers and clients are made through their bank in India and foreign bank and hence, both the banks i.e Appellant bank in India and the nodal bank in the foreign country recover bank charges for the services rendered to the Appellant which, according to the Revenue, has escaped service tax liability. Forming thus an opinion that services rendered by the foreign banks are taxable under ‘Banking and Financial Services’ (BFS), the Appellant being the recipient of services is liable to discharge service tax under the Reverse Charge Mechanism (RCM), which resulted in the issuance of a Show Cause Notice dt. 06.03.2024 proposing inter alia to recover the service tax as above. After hearing the Appellant during adjudication, vide Order-in-Original No.8/2016 dated 06.04.2016 proposed demands came to be confirmed against which the Appellant appears to have preferred an Appeal before the First Appellate Authority and the First Appellate Authority also having dismissed their Appeal vide the impugned Order-in-Appeal No.52/2017 dt. 02.03.2017, the present Appeal has been filed before us.
3. Heard Shri R. Balagopal, Id. Consultant for the Appellant and Smt. Anandalakshmi Ganeshram, Id. Assistant Commissioner for the Respondent; perused the documents placed on record and the case law relied upon during the course of arguments.
4. After hearing both sides, the only issue that survives for our consideration is, ‘whether the demand of service tax under RCM for an alleged service of BFS is justified ?’
5. We have perused the orders of CESTAT relied upon by the Ld. Consultant during the course of arguments and we find that in the Appellant’s own case, for an earlier period, this very Chennai Bench has vide Final Order No.40537/2025 dated 27.05.2025 set aside the demand confirmed in the impugned order therein, thereby allowing the tax payer’s Appeal. In view of the above, and following judicial discipline, we are of the view that the very same issue having been considered and laid to rest, we do not find any justifiable reasons in sustaining the impugned order.
6. Resultantly, the impugned order is set aside and the Appeal is allowed with consequential benefits, if any, as per law.
(Order pronounced in open court on 25.03.2026)
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