2026-VIL-1401-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Taxability of Letter of Credit charges recovered by trading company - Classification of LC charges as consideration for taxable service under banking and other financial services – Appellant recovered LC charges at fixed percentage from domestic buyers in High Seas Sale transactions along with trading margin as part of the price of imported goods sold - Whether LC charges recovered by the appellant from domestic buyers constitute taxable service under Banking and Other Financial services category or form part of price of goods sold – Demand invoking extended period of limitation - HELD - As evidenced by the nomenclature High Seas Sale Agreement, the dominant nature of the agreement is for sale of goods and the consideration clause specifically provides that the buyer shall pay inclusive of LC charges as per seller's invoice and such amount shall present the entire amount payable and shall include all costs of the seller – Since the relationship between the appellant and HSS buyer is that of seller and buyer and not service provider and service recipient, the basic requisites for classifying activity as service are absent - The expression banking and other financial services refers to services provided by banking company or financial institution which has authority to issue letter of credit and includes services normally rendered by banks and financial institutions. The appellant being purely a trading organization is not engaged in banking and other financial services and hence cannot be categorized as a body corporate or commercial concern similar to banking institutions - Every flow of money does not have the character of consideration for service. For rendering a service there must be a relationship in nature of service provider and service recipient. Mere payment of LC charges by buyer does not imply that appellant has rendered any taxable service - The LC charges being pre-import charges form part of the transaction value of goods imported and cleared by HSS buyer. It amounts to composite supply where primary transaction is sale of goods and procuring LC is merely linked to transaction of sales and hence cannot be vivisected to charge service tax on LC charges recovered as part of price of goods sold. In a composite supply the principal supply determines the nature of taxation. The primary transaction being sale of goods to the HSS buyer it has to be treated as transaction of sales, which has already suffered the customs duty - The demand of service tax is set aside and the appeal is allowed
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