No Service Tax Payable on Foreign Bank Charges as No Direct Service Rendered to Exporter: CESTAT

In a ruling that benefits exporters, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax is not payable on charges levied by foreign banks in export transactions. The tribunal reasoned that there is no direct service provider-recipient relationship between the Indian exporter and the foreign bank. The service tax department had sought to levy tax under the reverse charge mechanism, arguing that the exporter was the recipient of the banking service. However, the CESTAT observed that the contractual relationship is typically between the foreign buyer and their bank. The charges are often deducted from the payment and are part of the overall trade arrangement. Since the service is rendered by a foreign bank to a foreign buyer, both located outside the taxable territory of India, it does not constitute an import of service by the Indian exporter, thereby precluding any service tax liability.