Service Tax on Foreign Remittance - CBEC U-turn?
TWO years ago there was a lot of commotion in India and abroad on the Government's alleged proposal to charge Service Tax on foreign remittance. Even Shashi Tharoor wrote to the Prime Minister urging him not to levy the tax and the Kerala Chief Minister was assured by the then Prime Minister Manmohan Singh that there was no such proposal. Amidst all that international confusion, CBEC issued Circular No. , clarifying that:
1. There is no service tax per se on the amount of foreign currency remitted to India from overseas.
2. In the negative list regime, ‘service' has been defined in clause (44) of section 65B of the Finance Act 1994, as amended, which excludes transaction in money.
3. As the amount of remittance comprises money, the activity does not comprise a ‘service' and thus not subjected to service tax.
4. In case any fee or conversion charges are levied for sending such money, they are also not liable to service tax as the person sending the money and the company conducting the remittance are located outside India. In terms of the Place of Provision of Services Rules, 2012, such services are deemed to be provided outside India and thus not liable to service tax.
5. Even the Indian counterpart bank or financial institution who charges the foreign bank or any other entity for the services provided at the receiving end, is not liable to service tax as the place of provision of such service shall be the location of the recipient of the service, i.e. outside India, in terms of Rule 3 of the Place of Provision of Services Rules, 2012.
Now, CBEC has superseded this Circular and clarifies that:
1. No service tax is payable per se 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. The Indian bank or other entity acting as an agent to MTSO (money transfer service operator) in relation to money transfer, facilitates in the delivery of the remittance to the beneficiary in India. The agent falls in the category of intermediary as defined in rule 2(f) of the Place of Provision of Service Rules, 2012.
3. 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.
4. 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.
5. Sub-agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub-agents from Indian bank/entity.
This issue was decided by the Tribunal by a majority decision in the Paul Merchants Ltd case - 2012-TIOL-1877-CESTAT-DEL.
Paul Merchants Ltd (PML) was an agent for Western Union to transfer money from abroad to India.And the Tribunal by majority held that this activity amounted to export and so there was no liability to pay Service Tax. Of course, this case pertained to the period prior to 1.7.2012, but the Tribunal had observed, "the recently framed Place of Provision of Services Rules, 2012, replacing to Export of Service Rules, 2005 and Taxation of Services (provided from outside India and received in India) Rules, though differently worded and introducing further refinements in laying down the criteria for determining the place of provision of service (which in terms of Rule 3 is the place of recipient i.e. the place of consumption) follow the same principles as those behind the Export of Service Rules, 2005 and Service Import Rules."
So, the same logic is applicable even after 1.7.2012.
But suddenly, out of the blue, the Board has come up with the clarification that these are taxable activities.
This is sure to lead to a lot of agitation and litigation, especially in States like Kerala and Punjab where there are thousands of poor people getting foreign remittance from their relatives who do menial jobs in many foreign countries and even those poor people are not left out of the Service Tax net. This will certainly have political repercussions, with hardly any economic benefits.
CBEC Circular No. 180/06/2014-ST, Dated: October 14, 2014