ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 28.10.2025
CESTAT Mumbai- No Service Tax Liability on Foreign Bank Charges under Reverse Charge Mechanism
This Article has been written by Shri Ravi Shekhar Jha, Advocate based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.com or on his Mobile +91-9999005379.
In a significant ruling, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai, has delivered a judgment in favor of ICICI Bank Limited, setting aside service tax demands imposed by the Commissioner of Service Tax-I/IV, Mumbai. This decision, issued on October 23, 2025, addresses a long-standing dispute regarding the applicability of service tax under the Reverse Charge Mechanism (RCM) on foreign bank charges in export/import transactions.
Background of the Case
The appeals filed by ICICI Bank Limited challenged three Orders-in-Original issued by the Commissioner of Service Tax-I/IV, Mumbai. β These orders demanded service tax, interest, and penalties for the periods between July 2012 and June 2017. β The dispute revolved around whether Indian banks, acting as intermediaries for exporters and importers, should be considered recipients of services provided by foreign banks and, consequently, liable to pay service tax under RCM. β
The Department argued that foreign banks deduct charges for processing import/export documents and remittances, and Indian banks, as recipients of these services, are liable to pay service tax under Notification No. β 30/2012-Service Tax dated June 20, 2012. β
Key Issues in the Case β
The Tribunal identified two primary issues for determination:
- Whether Indian banks are the recipients of services in export/import transactions involving the transfer/exchange of documents and money on behalf of their client exporters/importers. β
- Whether Indian banks are liable to pay service tax on foreign bank charges under the Reverse Charge Mechanism. β
Arguments Presented
Appellant’s Arguments:
- ICICI Bank argued that they act as advising banks for Indian exporters and facilitate transactions but are not recipients of services from foreign banks. β
- The foreign bank charges are deducted from the remittance amount and paid by the exporter/importer directly, not by the Indian bank. β
- The bank emphasized that there is no flow of consideration from the Indian bank to the foreign bank, which is a necessary condition for service tax liability under RCM. β
- The bank cited several precedents, including the State Bank of Bikaner & Jaipur case, which held that Indian banks are not liable for service tax on foreign bank charges under RCM. β
Revenue’s Arguments:
- The Department contended that Indian banks are recipients of services provided by foreign banks and are liable to pay service tax under RCM. β
- They relied on a Trade Notice issued by the Chief Commissioner, Central Excise, Mumbai Zone-I, which clarified that Indian banks should pay service tax on foreign bank charges. β
Tribunal’s Observations and Decision
After hearing both sides and reviewing the case records, the Tribunal concluded that Indian banks are not the recipients of services provided by foreign banks in export/import transactions. β The Tribunal relied heavily on the precedent set by the State Bank of Bikaner & Jaipur case, which established that Indian banks merely act as facilitators for their clients and do not receive services from foreign banks.
The Tribunal also referred to the Madras High Court’s judgment in the BGR Energy Systems Limited case, which clarified that the liability to pay service tax on foreign bank charges lies with the exporter/importer, not the Indian bank.
Final Verdict
The Tribunal ruled that the service tax demands, interest, and penalties imposed on ICICI Bank Limited were not legally sustainable. β Consequently, the impugned orders were set aside, and the appeals filed by ICICI Bank Limited were allowed. β
Key Takeaways
- No Service Tax Liability for Indian Banks: Indian banks acting as intermediaries in export/import transactions are not considered recipients of services from foreign banks and are not liable to pay service tax under RCM for foreign bank charges. β
- Precedents Matter: The Tribunal’s decision was heavily influenced by previous rulings, particularly the State Bank of Bikaner & Jaipur case and the BGR Energy Systems Limited judgment. β
- Clarity on RCM Applicability: The judgment reinforces the principle that service tax under RCM is applicable only when there is a clear flow of consideration from the service recipient to the service provider. β
Conclusion
This landmark decision provides much-needed clarity on the taxability of foreign bank charges in export/import transactions. β It is a significant relief for Indian banks, as it exempts them from service tax liability under RCM for such charges. β The ruling also underscores the importance of legal precedents and the need for clear guidelines in interpreting tax laws. This case will undoubtedly serve as a reference point for similar disputes in the future.
Source: CESTAT Mumbai
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