Foreign Bank Charges - Who is the recipient of service in India?
Recipient of service
For Service Tax Negative List regime, this question has been answered at Para 5.3.3 of CBEC’s Education Guide as follows:
“5.3.3 Who is the service receiver?
Normally, the person who is legally entitled to receive a service and, therefore, obliged to make payment, is the receiver of a service, whether or not he actually makes the payment or someone else makes the payment on his behalf.”
In GST regime, the term “recipient” of supply has been defined at Section 2(93) of the CGST Act, prescribing inter alia that “(a) where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;”
Foreign bank is hired by foreign customer for sending payment to India. So, prima facie, foreign customer (importer) is recipient of service provided by foreign bank, irrespective of the fact whether he pays separately for such service or foreign bank deducts their charges from the amount of remittance.
There is no privity of contract between the foreign bank and Indian exporter. So, the Indian exporter cannot be treated as ‘recipient’ of service provided by foreign bank.
Trade Notice No. 20/2013-14-ST-I dated 10.2.2014 issued by Mumbai-I Service Tax Commissionerate talks about 'implied contract' between a bank in India and foreign bank as they have subscribed to URC 522 / UCP 600 norms issued by International Chamber of Commerce, which provide Articles containing terms and conditions which are binding on all parties subscribing to them. Thus, the said Trade Notice treats Indian bank as a recipient of service provided by foreign bank. However, this interpretation may be debatable in as much as merely by subscribing to such Articles, the relationship between the two banks may not considered as of the relationship between service provider and service recipient.
Following clarification given in Circular No. 163/14/2012-ST dated 10.7.2012 seems to be applicable:
“3. 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 GST regime, Sr.No.1 of Notification No. 10/2017-IT(R) prescribing RCM is applicable to RECIPIENT of service LOCATED IN TAXABLE TERRITORY. If foreign customer (remitter) is treated as recipient of service of foreign bank, then RCM is not applicable.
Thinking from another angle, suppose, a foreign customer wishes to send USD 1000 to Indian exporter. If the foreign bank deducts their charges of USD 10 from the remittance and sends USD 990 to Indian bank, there may be dispute as to whether the Indian bank would be treated as recipient of service valued at USD 10 provided by foreign bank or not. But, suppose foreign bank charges USD 10 SEPARATELY to its customer (foreign customer), and send the full amount of USD 1000 to Indian Bank, there would be no question of charging Service Tax or GST on the amount paid by the foreign customer to his bank (foreign bank).
In view of the above, it is felt that foreign customer (remitter) is the recipient of service provided by foreign bank; and neither Indian bank nor Indian exporter should be treated as the recipient of service provided by foreign bank in absence of PRIVITY OF CONTRACT.