SKM Egg Products Export (India) Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
In a recent ruling, the Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand against M/s. SKM Egg Products Export (India) Ltd., concerning charges deducted by foreign banks for export proceeds. The decision, delivered in the case of SKM Egg Products Export (India) Ltd. Vs Commissioner of GST & Central Excise, reiterates previous judgments on the same issue and brings clarity to the taxability of such foreign bank deductions.
The appellant, SKM Egg Products Export (India) Ltd., a company engaged in the export of egg yolk powder and albumen powder, was subjected to a service tax demand of Rs. 1,38,016/- along with interest and penalty. The demand originated from the observation by Revenue authorities that the company had not received full export proceeds, with foreign bankers deducting certain amounts for services rendered. The Revenue contended that these deductions constituted “Banking and Other Financial Service” received by the appellant under a reverse charge mechanism, necessitating the payment of service tax.
A Show Cause Notice was issued on April 21, 2015, which subsequently led to the confirmation of the demand by the Assistant Commissioner and upheld by the Commissioner (Appeals).
During the CESTAT proceedings, Shri S. Satishchandrasekaran, representing the appellant, argued that the issue was no longer a matter of contention, citing prior decisions by the same bench in the appellant’s own case. He referred to Final Order No. 40223/2023 dated March 31, 2023, covering the period 2006-2007, and Final Order No. 40113/2025 dated January 21, 2025, which addressed the period from July 2012 to March 2013. The current dispute pertained to the period from April 1, 2013, to September 30, 2013.
Shri N. Satyanarayanan, the Authorized Representative for the respondent, reiterated the findings of the lower appellate orders, seeking to uphold the service tax demand.
Upon review, the CESTAT bench acknowledged that the same issue had been decided in favor of the appellant in their previous cases. The tribunal’s Final Order No. 40223/2023, specifically examined whether amounts deducted by foreign banks as charges were taxable under “Banking and other Financial Service.” The earlier ruling had observed that the appellant submitted export documents to their Indian bank (SBI), which in turn utilized the services of foreign banks for the collection of export proceeds. The foreign banks deducted their charges while remitting the funds to SBI.
Crucially, the Tribunal noted that the appellant had no direct dealings with the foreign bank. The “Banking and Other Financial Service,” if at all rendered, was provided to SBI, the Indian bank, and not directly to the exporter.
This stance was reinforced by judicial precedents. The CESTAT Principal Bench, New Delhi, in the case of Theme Exports Pvt. Ltd. v. CST, Delhi, had previously addressed a similar matter. This decision relied on the reasoning set forth in M/s. Dileep Industries Pvt. Ltd. v. CCE, Jaipur.
In the Dileep Industries case, the Tribunal clarified that when Indian bankers facilitate export collections through foreign banks, and foreign banks deduct their charges before remitting to the Indian bank, the exporter is not liable to pay service tax on these deductions. The Tribunal in that case had stated, “the appellant are not entitled to pay the service tax.” It also cited Greenply Industries Ltd. v. CCE, Jaipur, where it was held that if no direct charges were levied by the foreign bank on the appellant, and the Indian bank paid the charges to the foreign bank, the appellant could not be considered the service recipient.
Based on these consistent judicial pronouncements, the CESTAT Chennai bench concluded that the demand against SKM Egg Products Export (India) Ltd. for the period in question could not be sustained. The tribunal set aside the impugned order, allowing the appeal with consequential benefits as per law. This ruling provides further clarity for exporters regarding the non-applicability of service tax on foreign bank charges deducted during the realization of export proceeds, where the service recipient is primarily the Indian bank facilitating the transaction.
FULL TEXT OF THE CESTAT CHENNAI ORDER
