CESTAT set aside Rs 77 crore service tax demand against Samsung in foreign remittance and reverse charge dispute.

May 19, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad Bench, has set aside a service tax demand exceeding Rs.77 crore raised against Samsung Electronics India Pvt. Ltd. in a long-running dispute concerning payments made in foreign currency to overseas entities. The Tribunal ruled that the Revenue Department could not presume that every foreign remittance amounted to import of taxable services and held that a substantial part of the transactions related either to import of goods, reimbursement of expenses, or services consumed outside India.

The dispute arose after departmental audits alleged that Samsung Electronics India had paid foreign companies under the accounting head “Advertisement and Sales Promotion Charges” and was therefore liable to pay service tax under the Reverse Charge Mechanism (RCM) in terms of Section 66A of the Finance Act, 1994. Over multiple show cause notices issued between 2011 and 2019, the Department sought recovery of service tax amounting to Rs.77.13 crore for the period from April 2006 to June 2017.

A Division Bench comprising Judicial Member P.K. Choudhary and Technical Member P. Anjani Kumar delivered the order on May 19, 2026, allowing Samsung’s appeals and granting consequential relief.

The Tribunal noted that earlier adjudication orders in the matter had already been remanded for reconsideration, particularly on issues relating to Cenvat credit and documentary verification. During the fresh proceedings, the Tribunal had directed a joint verification exercise involving Samsung representatives and departmental officers to reconcile disputed transactions spanning nearly eleven years.

Samsung argued that many of the impugned payments were wrongly classified as import of services. According to the company, several transactions actually pertained to import of goods, taxes already discharged under reverse charge, provisional accounting entries, reimbursement of overseas expenses, sponsorship of sporting events held outside India, and exchange rate fluctuations. The company also contended that the entire dispute was revenue neutral because any service tax paid would have been available as Cenvat credit.

One of the major components of the demand related to payments allegedly treated as imported services despite being linked to import of goods. Samsung submitted Bills of Entry, invoices, Chartered Accountant certificates and supporting banking records to establish that the payments were made toward purchase of goods and related ancillary expenses such as freight and customs duty. The Tribunal accepted this contention and observed that service tax under Section 66A and Notification No.30/2012-ST could be levied only on import of services and not on import of goods.

The Bench observed, “It cannot be demanded on the payment made in foreign currency towards import of goods,” while further holding that tax liability could not be based merely on presumption.

The Tribunal also examined Samsung’s contention that it had already paid service tax amounting to over Rs.1.27 crore under the Reverse Charge Mechanism. While the Department accepted challans for a substantial portion, it disputed a small component for which supporting documents could not be traced due to the age of the records. The Bench nevertheless observed that the broader issue of revenue neutrality and limitation would independently favour the assessee.

Another significant issue concerned accrual or provisioning entries in the company’s books. Samsung explained that at the end of each financial year it created estimated accounting provisions for anticipated expenses before receipt of actual invoices. These entries were later reversed when invoices were received and taxes paid. Referring to Rule 7 of the Point of Taxation Rules, 2011, the Tribunal held that service tax under reverse charge becomes payable only upon payment or after three months from the invoice date. Since no payment or invoice existed at the stage of provisional entries, the demand of more than Rs.6.63 crore was quashed.

The Bench further ruled in Samsung’s favour regarding expenses incurred for events, exhibitions, accommodation services and FIFA World Cup-related reimbursements outside India. It held that services consumed abroad could not be treated as taxable services imported into India. Interpreting Sections 64, 65B, 66B and 66C of the Finance Act, 1994 along with the Place of Provision of Services Rules, the Tribunal concluded that the place of provision for event and accommodation services was outside India and therefore outside the taxable territory.

Quoting Rules 5 and 6 of the Place of Provision of Services Rules, the Bench stated that the place of provision for services related to events and hotel accommodation “shall be the place where the event is actually held” or where the immovable property is located. Since the events were conducted outside India, no service tax liability could arise.

The Tribunal also set aside demands relating to reimbursements made to Samsung’s overseas headquarters and group entities. It held that reimbursement of expenses without any service element could not be classified as taxable business auxiliary services. Relying on the Supreme Court judgment in Union of India v. Intercontinental Consultants and Technocrats Pvt. Ltd., the Bench reiterated that reimbursements were not taxable for the relevant period prior to May 14, 2015.

Importantly, the Tribunal strongly endorsed the principle of revenue neutrality in indirect tax disputes involving reverse charge liabilities. Samsung argued that even if service tax were payable, it would have been eligible to avail equivalent Cenvat credit, resulting in no loss to the exchequer. The Department did not dispute the company’s eligibility for such credit.

Relying on precedents including Commissioner v. Coca-Cola India Pvt. Ltd., Jet Airways India Ltd. v. Commissioner of Service Tax, and Indus Valley Partners (India) Ltd., the Tribunal held that the dispute was entirely revenue neutral and therefore unsustainable.

The Bench observed that “there was no gain to the government exchequer” because any tax paid under reverse charge would have immediately become available as input credit to Samsung.

On limitation, the Tribunal held that the Department wrongly invoked the extended period under the Finance Act because the dispute involved interpretation of complex provisions relating to import of services and Place of Provision Rules. The Bench found no evidence of suppression or wilful misstatement by Samsung.

Setting aside the entire service tax demand along with interest and penalties, the Tribunal concluded that the Department had failed to establish taxable import of services in most cases and had incorrectly treated foreign remittances as taxable transactions without proper identification of services.

The ruling is expected to have wider implications for multinational companies facing legacy service tax disputes involving foreign remittances, overseas events, reimbursements, accounting provisions, and reverse charge liabilities under the pre-GST regime. The decision reinforces the principle that tax authorities cannot raise service tax demands solely on the basis of foreign currency payments or accounting entries without proving the existence of taxable services received in India.

Case Reference : M/s Samsung Electronics India Pvt. Ltd. v. Commissioner of Central Taxes & Central Excise, Gautam Buddh Nagar