No Service Tax on LC Charges in High Seas Sale as Banking Service: CESTAT Delhi

State Trading Corporation of India Ltd. Vs Principal Commissioner (CESTAT Delhi)

The CESTAT Delhi allowed the appeal filed by State Trading Corporation of India Ltd. against service tax demand on Letter of Credit (LC) charges recovered from domestic buyers in High Seas Sale (HSS) transactions. The appellant, a Government of India trading company, imported goods for domestic buyers and sold them through HSS agreements. It arranged opening of LCs through Indian banks in favour of foreign suppliers and recovered 0.54% of the LC value towards LC-related expenses, along with a 1.25% trading margin. The Department treated the recovered LC charges as consideration for “banking and other financial services” under Sections 65(12)(a)(ix) and 65(105)(zm) of the Finance Act, 1994. Demands of Rs. 4,03,42,735/- and Rs. 3,12,67,623/- were raised for different periods, along with interest and penalties.

The appellant submitted that the LC was issued exclusively by the bank and that the appellant merely incurred and recovered the banking expenses as part of the HSS sale price. It also contended that the relationship was that of seller and buyer, not service provider and recipient, and alternatively that the transaction constituted a composite supply predominantly involving sale of goods. The Revenue argued that the appellant arranged the LC facility and recovered separate consideration for financial facilitation services.