Service Tax on Foreign Remittance - Government Grants Sec 11C Benefit for past period
IN terms of section 11C of the Central Excise Act, 1944 (made applicable to service tax vide section 83 of the Finance Act, 1994), in case there was or is a generally prevalent practice regarding levy or non-levy of duty of excise on any excisable goods, the Central Government may, by notification, direct that the whole of the duty of excise payable on such goods shall not be required to be paid.
Three 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. , dated 10.07.2012 clarifying that the Indian 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.
But CBEC took a U Turn two years later, superseded the above circular and clarified in Circular No. dated 14.10.2014 that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.
So, the situation is, from 01.07.2012 to 13.10.2014, no Service Tax was leviable on this activity and from 14.10.2014, it was leviable. But that is not how the Government works. Once the Circular No. 163/2012 is withdrawn, though in 2014, assessees would have been hounded to pay the tax from 2012 and some Show Cause Notices were actually issued and even adjudicated - in favour of revenue. So, for the Government, tax was payable from 2012, even though the Board clarified that it was not payable. In some cases, even suppression must have been alleged that the assessee suppressed the fact that the Board was going to withdraw the 2012 circular!
This is where Section 11C mentioned at the beginning, comes to the rescue. And the good Board acted very fairly. When the 2014 Circular was issued, approval was taken for issue of a Section 11C notification and the field officers were instructed not to issue show cause notices for the period prior to the issue of the circular dated 14-10-2014. But issue of a Section 11C notification is not all that easy; by an archaic system prevalent in North Block, the Board is required to gather data about the number of Show Cause Notices issued, amount involved, amount collected etc., And this takes tome. And it took exactly one year for the Board to come out with that Section 11C Notification.
Now they have issued the Notification under Section 11C directing that the service tax payable under section 66B of the Finance Act, 1994, on the service provided by an Indian Bank or other entity acting as an agent to the MTSO in relation to remittance of foreign currency from outside India to India, during the period commencing on and from the 1st day of July, 2012 and ending with the 13th day of October, 2014 shall not be required to be paid.
We applaud the Board!
Please see
11.07.2012
15.10.2014
Notification No. , Dated October 14, 2015