Levy of service tax on activities involved in relation to inward remittances from abroad to beneficiaries in India – CBEC Circular

Circular No. 180/06/2014
– ST

 

F. No
354/105/2012-TRU (Pt.)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise
and Customs

Tax Research Unit

 

Room No 153, North
Block, New Delhi

Dated 14th October,
2014

To

Chief Commissioner of Customs and Central Excise
(All)

Chief Commissioner of Central Excise &
Service Tax (All)

Director General of Service Tax

Director General of Central Excise Intelligence

Director General of Audit

Commissioner of Customs and Central Excise (All)

Commissioner of Central Excise and Service Tax
(All)

Commissioner of Service Tax (All)

 

Madam/Sir,

 

Subject: – Levy of service tax on
activities involved in relation to inward remittances from abroad to
beneficiaries in India through MTSOs- reg.

      

            Vide
circular No. 163/14/2012–ST, dated 10th July, 2012, on the
issue of  levy of service tax on the activities involved in the
inward remittance it was clarified that there is no service tax per se on
the foreign exchange remitted  to India from outside for the
reason that money does not constitute a service and that conversion charges or
fee levied for sending such money would also not be liable to service tax as
the person sending money and the company conducting the remittance  are
both located outside India. It was also clarified that the Indian bank or
financial institution who provides service to the foreign bank or any
other entity is not liable to service tax as the place of provision of service
shall be the location of the recipient of service. This clarification covers
the scenario where the Indian bank or financial institution provides services
on principal to principal basis to the foreign bank/entity, on its own account,
and thus the service is covered by the general rule, i.e. rule 3 of the Place
of Provision of Service Rules, 2012.

2.         However,
subsequently, it had been brought to the notice of the Board that the foreign
money transfer service operator (MTSO), conducting remittances to beneficiaries
in India, have appointed Indian Banks/financial entities as their agents in
India who provide agency /representation service to such MTSO for furtherance
of their service to a beneficiary in India. The agents are paid a commission or
fee by the MTSO for their services. The entire sequence of transactions in
remittances of money from overseas through the MTSO route is as under:

Step 1: Remitter located outside India (say ‘A’) approaches a Money
Transfer Service Operator (MTSO)/bank (say B) located outside India for
remitting the money to a beneficiary in India; ‘B’ charges a fee from ‘A’.

Step 2:  ‘B’ avails the services of an Indian entity (agent)
(say ‘C’) for delivery of money to the ultimate recipient of money in India
(say ‘E’);  ‘C’ is paid a commission/fee by ‘B’.

Step 3: ‘C’ may avail service of a sub-agent (D). ‘D’
charges fee/commission from ‘C’.

Step 4: ‘C’ or ‘D’, as the case may be, delivers the money to ‘E’ and
may charge a fee from ‘E’.

 

3.         Clarifications
have been sought as to whether such agents (referred in Step 2 above) would
fall in the category of intermediary, and if so, whether service tax would be
leviable on the commission/fee amount charged by such agents. Clarifications
have also been sought as to whether the services provided by sub agent
(referred in step 3 & 4 above) are leviable to service tax and on
certain other related issues.

4.         The
issues discussed above have been examined and it is clarified as follows,-

S. No.

Issues

Clarification

1

Whether service tax is payable on
remittance received in India from abroad?

No service tax is payable per
s
e on the amount of foreign currency remitted to India from overseas. As
the remittance comprises money, it does not in itself constitute any service
in terms of the definition of ‘service’ as contained in clause (44) of
section 65B of the Finance Act 1994.

2

Whether the service of an agent or
the representation service provided by an Indian entity/ bank to a foreign
money transfer service operator (MTSO) in relation to money transfer falls in
the category of intermediary service?

Yes. The Indian bank or other
entity acting as an agent to MTSO in relation to money transfer,facilitates
in the delivery of the remittance to the beneficiary in India. In performing
this service, the Indian Bank/entity facilitates the provision of Money
transfer Service by the MTSO to a beneficiary in India.  For their
service, agent receives commission or fee. Hence, the agent falls in the
category of intermediary as defined in rule 2(f) of the Place of Provision of
Service Rules, 2012.

 

3

Whether service tax is leviable on
the service provided, as mentioned in point 2 above, by an intermediary/agent
located in India (in taxable territory) to MTSOs located outside India?

Service provided by an
intermediary is covered by rule 9 (c) of the Place of Provision of Service
Rules, 2012. As per this rule, the place of provision of service is the
location of service provider. Hence, service provided by an agent, located in
India (in taxable territory), to MTSO is liable to service tax.

The value of intermediary service
provided by the agent to MTSO is the commission or fee or any similar amount,
by whatever name called, received by it from MTSO and service tax is payable
on such commission or fee.

4.

Whether service tax would apply on
the amount charged separately, if any, by the Indian
bank/entity/agent/sub-agent from the person who receives remittance in the
taxable territory, for the service provided by such Indian
bank/entity/agent/sub-agent

Yes. As the service is provided by
Indian bank/entity/agent/sub-agent to a person located in taxable territory,
the Place of Provision is in the taxable territory. Therefore, service tax is
payable on amount charged separately, if any.

5.

Whether service tax would apply on
the services provided by way of currency conversion by a bank /entity located
in India (in the taxable territory) to the recipient of remittance in India?

 

Any activity of money changing
comprises an independent taxable activity. Therefore, service tax applies on
currency conversion in such cases in terms of the Service Tax (Determination
of Value) Rules. Service provider has an option to pay service tax at
prescribed rates in terms of Rule 6(7B) of the Service Tax Rules 1994.

 

6.

Whether services provided by
sub-agents to such Indian Bank/entity located in the taxable territory in
relation to money transfer is leviable to service tax?

Sub-agents also fall in the
category of intermediary. Therefore, service tax is payable on commission
received by sub-agents from Indian bank/entity.

 

5.         Accordingly,
Circular No. 163/14/2012-ST, dated 10.7.2012 stands superceded.

6.         Trade
Notice/Public Notice may be issued accordingly.

 7.        Please
acknowledge the receipt of this circular. Hindi version to follow.

 

Yours sincerely,

 

                                                                                              (Dr.
Abhishek Chandra Gupta)

Technical Officer, TRU

Tel: 011-2309 2037

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