Service tax was first introduced in India in 1994 and was only levied on 3 services. Gradually, this net kept on widening and more and more services were added to the list of taxable services. In 2012, India moved from charging Service tax on specified services i.e. positive list regime to all services except for the specified ones i.e. negative list regime. Now, of course, the taxation of services is governed by GST. Effectively, the service sector has seen a major overhauling of taxation system thrice in the last 25 years. This quick transition from positive regime to negative regime to GST has left many questions unanswered and many disputes unresolved. One such issue which has been answered recently by the Principal bench CESTAT, Delhi in case of State Bank of Bikaner and Jaipur Vs. Commissioner of Central Excise and Service Tax is whether exporter’s bank (Indian Bank) is service recipient for charges deducted by Importer’s Bank (Foreign Bank) in case of export transaction where documents & Bill of exchange are submitted by Exporter to Bank which are routed to importer’s bank and payment is made by importer’s bank after deduction of charges.
Facts of the Case
In an export transaction from India, the exporter submits the export documents to the Appellant Bank and informs the name and address of buyer’s bank for sending the export documents against acceptance and payment of Bill of Exchange – The Appellant Bank forwards these documents to the Foreign Bank or the Foreign Intermediary Bank for collection of payment from the importer. Appellant Bank charges commission/fees for the provision of such services to the exporters and pays service tax on such services. If the exporter decides to bear all the bank charges, then the foreign bank charges its fees from the exporter for handling of export documents and collection of export proceeds. The foreign bank charges are then recovered from the exporter by deducting the foreign bank charges from the amount collected from the importer.
Audit team of the Department raised an objection that the Appellant Bank had not paid service tax on foreign bank charges under the reverse charge mechanism. Notice was issued for the period October 2010 to March 2015 on the foreign bank charges and demand of Rs. 110,84,38,781/- along with interest & penalty was imposed and confirmed by Commissioner.
Contention of Appelant
Contentions of Department
Decision by Tribunal
Tribunal held that Indian Bank is not the recipient of any service rendered by the Foreign Bank and, therefore, there is no liability to pay service tax on a reverse charge mechanism on following grounds:
Position in Post GST era
Introduction of GST was one of the major tax reform in India. It is built up on decades of different Indirect Tax Laws and judicial precedents. One of the objective of GST, among others, was to reduce litigation.
Issue discussed earlier seems to be fairly settled in GST considering definition of ‘Supply’, ‘Supplier’, ‘Recipient of service’ & ‘Consideration’
Sec 2(105) “Supplier” in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied
Sec 2(93) “Recipient” of supply of goods or services or both, means—
(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
Sec 2(31) “consideration” in relation to the supply of goods or services or both includes––
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
Considering above provisions of GST, supply of service is provided by foreign bank (Supplier of Service) to Exporter (Recipient of service) wherein consideration is charged in form of bank charges by deducting such charges from export proceeds.
Further, supply of service discussed supra will fall under Sec 13(2) of IGST Act, 2017 and thus Place of supply of such service will be ‘Location of recipient of service’ who is Exporter in our case. Also, as per Sl. no. 1 of Notification No. 10/2017- Integrated Tax (Rate) dated 28/June/2017, IGST under RCM is applicable wherein service is supplied by person located in non-taxable territory to any person located in taxable territory.
Therefore, IGST is to be paid by Exporter under reverse charge on bank charges deducted by foreign bank.