2026-VIL-1866-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Foreign bank charges deducted from export proceeds - Reverse charge on Banking and Other Financial Services - Appellants were exporters of knitted garments who received export proceeds through their Indian banks. The foreign banks deducted their charges while transmitting the proceeds, and only the net amount was credited to the Appellants. The Department treated the deducted charges as consideration for Banking and Other Financial Services received by the Appellants and confirmed Service Tax demands under reverse charge with interest and penalties, which the FAA upheld - Whether the charges deducted by foreign banks from export proceeds constitute consideration for taxable Banking and Other Financial Services received by the Appellants so as to attract Service Tax under reverse charge - HELD - The mere deduction of charges from export proceeds cannot by itself establish that the exporter was the recipient of banking service. The Appellants had neither engaged the foreign banks nor issued any instructions, entered into any agreement or received any invoice from them. The Department produced no material to establish a direct contractual or service relationship between them. The foreign banks acted in the course of the banking arrangement of the overseas buyers and transmitted the proceeds to the Indian banks. Charges deducted in such bank to bank transactions cannot be taxed in the hands of the exporters in the absence of a service provider and service recipient relationship. Reverse charge liability arises only when the Department establishes that the taxable service was rendered to the person sought to be taxed. Once the demand is unsustainable, the consequential interest and penalties also cannot survive. The contentions on limitation need not be examined - The demands of Service Tax, interest and penalties are set aside and the appeals are allowed
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