• Dated 28^nd July, 2026

Indian Banks Not Liable to Service Tax under RCM on Foreign Bank Charges in Export/Import Transactions

Brief Facts

The Appellant is engaged in providing banking and financial services, including facilitating export and import transactions through Letters of Credit (LCs) and remittance services. In the course of such transactions, foreign banks deducted certain charges from the remittance amount before transmitting the balance amount to the Appellant in India. The Department alleged that the foreign banks had rendered banking services to the Appellant and, accordingly, treated the Appellant as the recipient of such services. On this premise, a demand of Service Tax under the Reverse Charge Mechanism (RCM) was raised, along with applicable interest and penalties.

Appellant's Contentions

The Appellant contended that it merely acted as an intermediary in facilitating the transfer of funds between the exporter/importer and the foreign bank and did not receive any service from the foreign banks. It was submitted that the foreign bank charges were either deducted directly from the export proceeds or borne by the importer/exporter, and no payment or consideration flowed from the Appellant to the foreign banks. Consequently, the Appellant could not be regarded as the recipient of the services for the purpose of levy of Service Tax under the Reverse Charge Mechanism.

Department's Contentions

The Department contended that the foreign banks rendered banking and financial services in relation to processing export/import documents and facilitating remittance of foreign currency. Since the Appellant dealt with the foreign banks and received the remittances in India, it was the recipient of such services. Consequently, the Department asserted that the Appellant was liable to discharge Service Tax under the Reverse Charge Mechanism in terms of Section 68 of the Finance Act, 1994 read with Notification No. 30/2012-ST, together with applicable interest and penalties.

Held

The Tribunal held that the Appellant was not the recipient of the services rendered by the foreign banks. It observed that the Appellant merely facilitated the remittance process on behalf of its exporter/importer customers and neither engaged nor paid the foreign banks for their services. Since the foreign bank charges were borne by the exporter/importer and no consideration flowed from the Appellant to the foreign banks, the essential conditions for levy of Service Tax under the Reverse Charge Mechanism were not satisfied. Relying upon its earlier decisions, particularly State Bank of Bikaner & Jaipur, the Tribunal set aside the impugned orders and held that the demand of Service Tax, along with interest and penalties, was unsustainable in law.

BTA Comment

This decision reaffirms the settled legal position that liability under the Reverse Charge Mechanism cannot be fastened merely because an Indian bank facilitates a cross-border transaction. The Tribunal has once again emphasized that the existence of a service recipient-provider relationship and the flow of consideration are indispensable prerequisites for invoking reverse charge liability. The ruling provides much-needed certainty to the banking sector by reiterating that Indian banks, acting merely as intermediaries in export/import remittances, cannot be treated as recipients of services rendered by foreign banks.

Case Reference: ICICI Bank Ltd. v. Commissioner of Service Tax-I/IV, Mumbai (CESTAT Mumbai, Final Order dated 23.10.2025).

Author: Aindrila Ghosh

Edited by: Madhurima Bose