The CBEC has explained the transaction and party involved in inward remittance and also clarified the issues relating to levy of service tax on activities involved in relation to inward remittances from abroad to beneficiaries in India through Money Transfer Service Operator (MTSO). This circular also specified that it is in supersession of earlier Circular No. 163/14/2012-ST dated 10.07.2012. Clarification are as follow:
Issue 1 : Whether service tax is payable on remittance received in India from abroad?
Clarification : 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.
Issue 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?
Clarification : 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.
Issue 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?
Clarification : 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.
Issue 4: Whether service tax would apply on the amount charged separately, if any, by the Indian bank/entity/agent/subagent from the person who receives remittance in the taxable territory, for the service provided by such Indian bank/entity/agent/subagent?
Clarification: 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.
Issue 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?
Clarification : 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.
Issue 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?
Clarification : Sub-agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub-agents from Indian bank/entity.
[Circular No. 180/06/2014-ST dated 14.10.2014]