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 14
th
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 10
th
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
