State Bank of Bikaner & Jaipur Vs Commissioner of Central Excise & Service Tax (CESTAT Delhi)
The issue under consideration is whether service tax can be levied on reverse charge mechanism basis on an Indian bank acting as a mediator between an Indian exporter and the foreign banker representing foreign importer?
CESTAT states that there are two reasons have been assigned for dropping the demand made in the show cause notice. The first is that the Foreign Bank does not transact business of banking in India and, therefore, would not fall within the definition of a ‘banking company’, which is a pre-requisite for a service to be covered under ‘banking & other financial services’. The second reason assigned by the Additional Commissioner is that the Indian Bank does not pay any amount to the Foreign Bank and, in fact, the Indian Bank only plays a role of a mediator between the Indian exporter and the foreign banker representing the foreign importer. This is a general practice that the exporters are required to follow by routing the export documents through a banking channel. Thus, the Indian bank did not receive any service from the Foreign Bank. The inevitable conclusion that follows from the above discussion is that the 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. Thus, for all the reasons stated above, it is not possible to sustain the order passed by the Commissioner. It is, accordingly, set aside and the Appeal is allowed.
