Rupee falls – thanks to TRU
IF you want to buy a dollar, the exchange rate according to RBI is a little less than Rs. 45/-. But wait! TRU wants to make it more expensive or cheap depending on whether you want to buy or sell Dollars. Now if you want to exchange a dollar, the bank or the exchanger will charge you a 10% Service Tax which will make your dollar costlier by 10.2%. In a letter addressed to the DGST with the mandatory copies to all Chief Commissioners and Commissioners, TRU wants to tax all money changers. But they are not brokers and they don’t charge a commission. They simply buy or sell foreign exchange at the rates fixed by RBI. But TRU has a different logic. The TRU letter says, “Money changers cannot go out of the purview of service tax on the plea that they are merely selling and purchasing foreign currency and not dealing or brokering in foreign exchange”. There is a strange logic behind this logic according to TRU. “Under Sale of Goods Act, Goods means every kind of moveable property but excludes money. Therefore transactions in foreign exchange do no fall under scope of sale.” And if it is not sale is it liable for Service Tax? Strangely the TRU clarification does not mention on what value the tax is to be paid. As the money changers do not charge any commission, what could be the value? Is it the gross payment?
Incidentally TRU seems to be unaware of its own clarification given in CIRCULAR NO. 62/11/2003, Dated: Aug 21, 2003 in which while observing that forex brokers included money changers, clarified that only the service of “foreign exchange broking” when provided by foreign exchange brokers has been brought under the tax net.
Why this change in opinion after two years? And as is the practice now a days, the TRU is shy of the circular and it has not been made public. They must surely be aware of the Right To Information Act which has already come into force. Please see our detailed analysis of the issue in our “Special column” today.