Exporters are not liable under reverse charge for foreign-bank charges absent a service provider–recipient relationship.

M/s Aurobindo Pharma Ltd., a manufacturer-exporter of pharmaceutical products, received export proceeds through foreign and intermediary banks. Those banks deducted charges during transmission of the remittances, resulting in the appellant receiving the net amount.

The Revenue treated the appellant as the recipient of banking services and demanded Service Tax under the reverse charge mechanism under the category of “Banking and Other Financial Services” for 2011–12 and April–June 2012.

The appellant had also engaged M/s DADA Consultancy and M/s Pharpe Dr. D.R. Iban for preparing and compiling regulatory dossiers, clinical and non-clinical overviews, and other documentation required for obtaining overseas regulatory approvals for pharmaceutical products.

The appellant relied upon the Tribunal’s earlier decision in its own case for 2006–07 to 2010–11, Final Order No. 30919/2020 dated 9 September 2020, which had set aside demands concerning the same or substantially similar services.

Whether the appellant could be treated as the recipient of services rendered by foreign or intermediary banks merely because those banks deducted charges while transmitting export proceeds, thereby attracting Service Tax under the reverse charge mechanism under “Banking and Other Financial Services”?

Whether the services provided by M/s DADA Consultancy and M/s Pharpe Dr. D.R. Iban for preparing and compiling regulatory documentation and assisting in obtaining overseas pharmaceutical approvals were classifiable as “Scientific or Technical Consultancy Services”?

Whether the consequential demands of interest and penalties were sustainable once the principal Service Tax demands were found unsustainable?

The Tribunal applied the provisions of the Finance Act, 1994 governing levy of Service Tax, classification of taxable services, and reverse charge liability.

It held that reverse charge presupposes the existence of a taxable service-provider/service-recipient relationship and cannot be imposed merely because the assessee bears an economic deduction from export proceeds.

For “Scientific or Technical Consultancy Services,” the relevant test is the actual nature of the activity: the service must involve advice, consultancy, or scientific/technical assistance rendered by a scientist, technocrat, or scientific/technological institution in a discipline of science or technology.

The Tribunal followed its earlier decision in the appellant’s own case, Final Order No. 30919/2020 dated 9 September 2020, and the principle stated in IPCA Laboratories Ltd. v. Commissioner of Central Excise & Service Tax, LTU, Mumbai, 2019 (21) G.S.T.L. 502 (Tri.-Mumbai), that regulatory and registration assistance for marketing pharmaceutical products abroad does not, merely for that reason, constitute scientific or technical consultancy.

It also relied upon Eastman Exports Global Clothing Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Coimbatore, 2025 (26) Centax 71 (Tri.-Mad.), concerning the absence of Service Tax liability on bank charges deducted from export proceeds where the requisite service-provider/service-recipient relationship is not established.

The Tribunal found no evidence that the appellant had engaged, contracted with, or undertaken an obligation to pay the foreign or intermediary banks for services rendered to it.

The banks operated within the foreign buyer’s banking arrangements and the inter-bank mechanism for transmitting funds. Therefore, the mere fact that bank charges reduced the amount credited to the appellant did not establish a taxable service-provider/service-recipient relationship or justify reverse charge liability.

Regarding the consultancy services, the Tribunal focused on the substance of the activities rather than the professional qualifications of the service providers.

The preparation and compilation of dossiers and regulatory forms from information already available with the appellant or from published material did not, without evidence of independent scientific research, experimentation, technical study, or scientific advice, satisfy the statutory character of “Scientific or Technical Consultancy Services”.

The Tribunal further noted that the appellant had discharged tax under another taxable category, namely “Management or Business Consultant Service,” making the dispute substantially one of classification and interpretation rather than complete tax avoidance.

Since the principal demands failed, the associated interest and penalties also could not survive.

The Tribunal held that the appellant was not the recipient of taxable banking services merely because foreign or intermediary banks deducted charges from export remittances; consequently, the Service Tax demand under “Banking and Other Financial Services” was set aside.

It further held that the regulatory-documentation and approval-related services provided by M/s DADA Consultancy and M/s Pharpe Dr. D.R. Iban were not classifiable as “Scientific or Technical Consultancy Services,” and the corresponding demand was also set aside.

The consequential demands of interest and penalties were quashed, the impugned order was set aside, and the appeal was allowed with consequential relief in accordance with law.