BOI Entitled Service Tax Refund Paid On Commission Charges For Credit Facility: CESTAT

The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that Bank of India is eligible for refund of service tax paid on commission charges for granting credit facility subject to verification.

The bench of Sulekha Beevi C.S. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that the appellant bank has satisfied all the conditions for treating the service as an export of service, but there is a need to verify whether the service tax paid has been recovered or not from M/s. Aban Singapore Pte. Ltd. to be eligible for refund. As per the terms and conditions, M/s. Aban Singapore Pte. Ltd. has to pay the commission quarterly in advance along with applicable service tax. Whether the commission has been paid along with the service tax by M/s. Aban Singapore Pvt. Ltd. has to be verified by the refund sanctioning authority.

The assessee/appellant is a corporate banking branch in Chennai. The assessee had issued a Standby Letter of Credit (SBLC) in favor of M/s. Aban Singapore Pte. Ltd., which is a subsidiary of M/s. Aban Offshore Ltd. Chennai. The SBLC was issued to Bank of India, Singapore Branch, for a period of seven years as security for all payment obligations of M/s. Aban Singapore Pte. Ltd. It appears that M/s. Aban Singapore Pte. Ltd. had paid commission to the bank on a quarterly basis in convertible foreign exchange.

The bank remitted the service tax on the commission received from M/s. Aban Singapore Pte. Ltd. When the bank realized that it was not liable to pay service tax on the commission received in terms of provisions of the Export of Services Rules, 2005, the service tax paid has been claimed as a refund.

A Show Cause Notice was issued proposing to reject a major part of the refund claim on the ground of limitation in terms of Section 11B, as refund of the service tax paid should be claimed within one year from the date of payment of service tax. Out of the total amount of refund claimed for Rs. 20,84,750, the Show Cause Notice proposed to reject Rs. 15,25,972 on the ground of time-bar.

However, after the due process of adjudication, the Original Authority has rejected the entire refund claim, holding that the appellant has not complied with the provisions of the Export of Services Rules, 2005, inasmuch as the appellant had not produced the 'original request' of M/s. Aban Singapore Pte. Ltd. for sanction of credit facilities. The bank's sanction letter was sent to the office of the holding company in Chennai, clearly evidencing that the request for provision of services had been made by the recipient of service from an office in India.

The appellant had obtained, as security, the assets of the holding company in Chennai, and the appellant had even conducted an inspection of the secured assets of the holding company in India. As the recipient of services has not made an order for the provision of services from outside India, the Original Authority had arrived at the conclusion that services could not be considered an export of service in terms of the proviso to Rule 3(iii) of the Export of Services Rules, 2005, and that the requirements of Notification No. 11/2005-ST have not been fulfilled.

The refund claim filed by the appellant was found to be ineligible for the service tax paid on the commission received from M/s. Aban Singapore Pte. Ltd.

The assessee contended that the Original Authority has traversed beyond the Show Cause Notice issued to them and also without putting them to notice in deciding the question as to whether the transaction fell within the ambit of Rule 3 of the Export of Services Rules, 2005, which is not permissible, and as such, the order merits to be set aside.

The department contended that the request for credit facility has been made by the recipient of service from an office in India, and the bank has obtained as security the assets of the holding company in Chennai. The letter sanctioning the credit facility was addressed by the appellant bank to an Indian entity, which is not the recipient of service. No documents are on record to show that the request was made by any office located outside India. Further, the appellant has carried out an inspection of the secured assets within India. As the recipient of service has not made any request for provision of service from outside India, the service rendered is not to be considered as an export of service in terms of Rule 3(iii) Export of Services Rules, 2005.

The tribunal held that the appellant is eligible for refund of service tax paid on the commission charges in respect of granting credit facility to M/s. Aban Singapore Pte. Ltd., subject to conducting verification whether the appellant has recovered the service tax paid from M/s. Aban Singapore Pte. Ltd. or not.

The tribunal has the matter remanded back for the limited purpose of verifying whether the service tax was collected by the appellant. The appellant is eligible for refund. In case it is found that the appellant has recovered the commission charges along with the service tax paid, the appeal fails.

Counsel For Appellant: N. Viswanathan

Counsel For Respondent: Anoop Singh

Case Title: M/s. Bank of India Versus Commissioner of GST and Central Excise

Case No.: Service Tax Appeal No. 40765 of 2015

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