RCM ON FOREIGN BANK CHARGES, Goods and Services Tax - GST

[NILESH PITALE]

Dear Expert - Observation raised by GST Officer During The Audit

My Client is exporter, Importer & Local Trader

Observation : NON-PAYMENT OF RCM ON FOREIGN BANK CHARGES: During the course of Audit, It is seen that foreign bank have deducted the bank charges against receipt of foreign currency. The banks are deducting charges for remittance of money. The location of the supplier i.e. Bank is outside India and location of the recipient is in India (taxable territory). from the data provided. it is seen that a certain amount of charges are shown as short receipt which are actual the Bulk Charges of the foreign Bank. The Service provided by foreign bank for remittance to export proceeds is liable to GST as per Notification No. 10/2017-Integrated Tax (Rate), dated 27.06 2017, which stipulates that any service supplied by any person who is located in a non-taxable territory to any person located in a non-taxable territory, the person located in the taxable territory will be paid on reverse charge basis by the recipient of such services---------------- is it RCM Applicable Please Guide

Posts / Replies

[KASTURI SETHI]

The same issue is pending with the Supreme Court in the case of State Bank of Bikaner & Jaipur, Alwar (Rajasthan). The Commissioner confirmed the demand and CESTAT set aside Order-in-Original and now the department has filed Civil Appeal with the Supreme Court. 

Banking and Other Financial Services — Indian bank facilitating settlement of payment between exporters and their buyers abroad, sending export documents to foreign banks of such buyers and collecting payments, whether liable to pay Service Tax on charges collected by such foreign banks from exporters ?

The Supreme Court Bench comprising Hon’ble Ms. Justice Bela M. Trivedi and Hon’ble Mr. Justice Pamidighantam Sri Narasimha on 7-11-2023 admitted in the Civil Appeal No. 2713 of 2021 filed by Commissioner of Central Excise and Service Tax, Alwar against the CESTAT Final Order No. 50737/2020, dated 5-8-2020 as reported in 2020 (8) TMI 80 - CESTAT NEW DELHI (Tri. - Del.) (State Bank of Bikaner and Jaipur v. Commissioner).

The Appellate Tribunal in its impugned order had held that the Indian bank facilitating settlement of payment between exporters and their buyers abroad, sending the export documents to the foreign based bank of such buyer and collecting payments, are not liable to pay Service Tax under Reverse Charge Mechanism on charges collected by such foreign banks for their activities and deducted at source in the export bill particularly when it is neither the recipient of any service from the said foreign bank nor had paid any consideration to it and had already paid Service Tax on commission/fee received from the exporters for providing aforesaid services.

[Commissioner v. State Bank of Bikaner and Jaipur - 2023 (11) TMI 1347 - SC ORDER]

[KASTURI SETHI]

  In continuation of above, in my view the exporter is not liable to pay tax under RCM. The Indian bank is the service recipient from the foreign bank and liable to pay tax under RCM.

  The Commissioner, Central Excise & Service Tax held the Indian Bank as Service Recipient  and NOT the exporter but the Bank filed an appeal with CESTAT and the Tribunal allowed the appeal and now the department has filed Civil Appeal with Supreme Court.

   Thus the department cannot take double stand.

[Padmanathan KV]

Entire transaction structure has to be examined in detail to determine who is the actual service provider and recipient. As mentioned earlier by Learned Kasturi Ji, if Indian bank is indeed the service recipient, Dept cannot demand RCM in the hands of the importer. 

[Shilpi Jain]

In most of these cases the Indian bank is the service recipient so no liability on the foreign bank. See if it is possible to take a letter / communication from your bank regarding this fact which could help in adjudication.

These are all a battle of facts. If you can justify the facts, then there is no further case for the department.

[KALLESHAMURTHY MURTHY]

Sir, 

I do agree with the views of Sri - Padmanathan KV sir.