Nostro Accounts by Banks- Service Tax Evasion
AN incident Report by the DGCEI states,
“On the basis of Intelligence to the effect that M/s. Xxx Bank has entered into agreements with Banks located outside India to maintain Nostro Accounts, this office took up investigation in March 2010. For maintaining the said Nostro Accounts, the service charges are remitted in foreign currency. These remittances are chargeable to service tax under Service Head of “Banking & Other Financial Services” as per the provisions of Section 65(12)(a)(ix) of the Finance Act 1994 and is taxable under Section 65(105) (zm) of the Finance Act 1994. These remittances are essentially meant for operation of Nostro Bank Accounts which comes under the ambit of sub-head referred to as “OTHER FINANCIAL SERVICES” and the bank is liable to pay service tax w.e.f 16.06.2005 onwards as per the provisions of law.
2. As a sequel to the investigations, the bank has deposited the amount of service tax amounting to Rs.23,48,882/- and interest thereon of Rs.6,66,619/- in respect of their FEOs at Delhi, Mumbai, Kolkata, Chennai and Bhadohi.”
Now what is the significance of 16.06.2005? Is it not 18.04.2006?
What is a Nostro Account?: An account at a foreign bank where a domestic bank keeps reserves of a foreign currency. A bank keeps a nostro account so that it does not have to make a currency conversion (which brings with it foreign exchange risk) should an account holder make a deposit or a withdrawal in that foreign currency.