By TIOL News Service

MUMBAI, MAY 22, 2017: L/C - letter of credit (noun): a letter issued by a bank to another bank (especially one in a different country) to serve as a guarantee for payments made to a specified person under specified conditions.

The appellant has pre-sanctioned credit limit with their Bank for establishment of letters of credit (hereinafter referred to as L/C limit).

Various importersapproach the appellant for availing the facility of utilization of the appellant's L/C limit with the appellant's bank for payment of the price to the foreign suppliers of the goods imported by the importers.

In cases where the appellants agreed to grant such facility to importers, the appellants establish the L/C through the appellant's bank in favour of the foreign supplier of the goods imported by the importer. In all such cases, the purchase orders on the foreign suppliers are placed by the importers through their indenters and the appellants are not involved in placing of the purchase order and import of the goods.

The case of the department is that the appellant's service of providing the L/C facility to the importers falls under the BAS under clause (iv) of Section 65 (19) of the Finance Act, 1994.

This clause reads - (iv)   procurement of goods or services, which are inputs for the client; or

The lower authorities confirmed the demand and so the appeal before the CESTAT.

It is submitted that the appellants are providing limited services of L/C facility to their clients, who import goods on their own and that they are not involved in placing the order importing the goods, clearing the goods, etc. on behalf of their clients and, therefore, the service does not conform to the ingredients required for classifying the service under clause (iv) of definition of BAS.

The Bench extracted clause (iv) (supra) and observed -

"…, it is observed that if any service provider procured the goods or services for the client and the same is input for the client then the services falls under the proposed category. In the facts of the present case, it is undisputed that the appellant is not procuring any goods for their clients. The goods which was referred by the lower authorities is the imported goods, which was directly imported by the various importers. The service of the appellant is confined to only providing the facility of L/C through their bank to the various importers. The appellant is nowhere concerned with the procurement of goods, which was undertaken by their clients only and not by them. In these facts, we are of the clear view that the appellants have not provided any services, in particular, procurement of goods which is inputs for their clients. Therefore, the demand was wrongly confirmed under the said head and upheld by the Commissioner (Appeals)…"

Holding that the demand is clearly unsustainable, the same was set aside and the appeal was allowed.

(See 2017-TIOL-1697-CESTAT-MUM)