Pranav B Prem

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai Bench, has set aside multiple service tax demands raised on ICICI Bank Ltd., holding that Indian banks are not liable to pay service tax under the Reverse Charge Mechanism (RCM) for foreign bank charges deducted during export and import transactions. The Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) observed that Indian banks are not recipients of any service rendered by foreign banks in cross-border trade settlements. Therefore, no service tax liability arises under RCM on such charges.

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Background

The proceedings stemmed from three show cause notices issued to ICICI Bank covering the period July 2012 to June 2017, alleging non-payment of service tax on charges deducted by foreign banks while processing export and import remittances. The Department’s case was that ICICI Bank had received taxable “banking and financial services” from foreign banks and was therefore liable to pay service tax under Notification No. 30/2012-Service Tax, read with Section 68 of the Finance Act, 1994. The Commissioners of Service Tax-I and IV, Mumbai, had confirmed the demands, interest, and penalties through three separate orders. Aggrieved, the bank approached the Tribunal.

ICICI Bank’s Contentions

ICICI Bank argued that it merely acted as an intermediary facilitating export and import payments on behalf of customers and was not the recipient of any service from foreign banks. The bank explained that in export transactions, the foreign bank deducts its charges from the remittance amount before transferring funds to the Indian bank, and such charges are borne by the exporter or importer, not by ICICI Bank. It also pointed out that international trade operates under globally recognized protocols — UCP-600 and URC-522 — issued by the International Chamber of Commerce, which govern inter-bank communication but do not create a service relationship between foreign and Indian banks. The bank further relied on judicial precedents such as State Bank of Bikaner & Jaipur v. CCE & ST, Alwar [2021 (45) GSTL 293 (Tri.-Del.)], HDFC Bank Ltd. v. CST, Mumbai-V [2024 (15) Centax 281 (Tri.-Bom.)], and Bank of Baroda v. CST, Mumbai [Final Order No. A/86227/2025], which had held that foreign bank charges are not taxable under RCM.

Tribunal’s Analysis

After reviewing the factual matrix and prior rulings, the Bench held that the Indian bank cannot be treated as a service recipient of the foreign bank merely because foreign bank charges are deducted abroad. The Tribunal referred extensively to the State Bank of Bikaner & Jaipur decision, where it was held that: “The Indian bank merely acts on behalf of the Indian exporter and facilitates the service. It cannot be said to be the recipient of any service from the foreign bank, and therefore, no liability to pay service tax arises under RCM.”

The Bench emphasized that for service tax liability to arise, “consideration must flow from the recipient to the service provider” and must accrue to the provider’s benefit. Since no consideration was paid by ICICI Bank to foreign banks, there was no taxable service relationship. Quoting the Supreme Court’s decision in Bhayana Builders Pvt. Ltd. v. CST [2018 (10) GSTL 118 (SC)], the Tribunal reiterated that: “Service tax can only be levied on the value of services actually rendered for consideration received by the service provider. Any amount not forming part of such consideration cannot be taxed.”

Department’s Stand Rejected

The Department had relied on a Trade Notice dated February 10, 2014, issued by the Chief Commissioner of Central Excise, Mumbai, which stated that Indian banks should pay service tax on foreign bank charges. The Tribunal, however, found that this Trade Notice was merely based on interim orders and could not override judicial interpretation. Citing the Madras High Court’s ruling in BGR Energy Systems Ltd. v. Addl. Commissioner of GST & Central Excise [2020 (32) GSTL 186 (Mad.)], the Bench reaffirmed that in such transactions, it is the importer or exporter who bears the charges and not the Indian bank. The Tribunal also noted that foreign bank charges were explicitly paid by the importer/exporter, as confirmed by transaction records and contractual clauses, leaving no basis to treat ICICI Bank as the service recipient.

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The CESTAT held that ICICI Bank was not the recipient of any service from foreign banks in cross-border trade transactions, and therefore, no service tax liability arises under the Reverse Charge Mechanism. “The confirmation of service tax demands, interest, and penalties on the appellant is not legally sustainable. The impugned orders are set aside,” the Tribunal ruled. Accordingly, the appeals filed by ICICI Bank Ltd. were allowed, and the departmental demands and penalties were quashed in full.

Appearance

For  Appellant: V. Sridharan, Sr. Advocate

For Respondent: Manish Mohan, Commissioner

Cause Title: ICICI Bank Limited Versus Commissioner of Service Tax – I 

Case No: Service Tax Appeal No. 85423 of 2017

Coram: S.K. Mohanty (Judicial Member), M.M. Parthiban (Technical Member)