Service tax on interchange fee

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

06 January 2015 Hi,
Help me to know the applicability of service tax on the below scenario..

Customer of Bank "A" has withdrawn cash from ATM of Bank "B". Bank "A" has collected charges of Rs 20(including service tax of Rs 2.20) from customer and shared Rs 16.85(including service tax of Rs 1.85) with Bank "B". Here both the banks are paying service tax of Rs 4.05 (2.20 by A,1.85 by B) on a sing transaction. Whether bank "A" can adjust the service tax of 1.85 paid by "B" with Rs 2.20 and pay balance amount of Rs 0.35. Please suggest.

Mohit Singla

Mohit Singla (Expert)
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07 January 2015 Yes they can,
as their is no exception in case of banking companies has been provided in the law.
Rule 3 of CCR allows to take credit of input services used by the provider of output service for providing output services.
So bank "A" can adjust the same and only require to pay rs. 0.35 to the govt.

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Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2015 Thanks you for your suggestion.

could you please clarify the below one :-
In other scenario Bank "A" has collected charges from his customer and shared some amount with Bank "B". Also paid the service tax on amount shared with Bank "B" under reverse charge mechanism since the Bank "B" is located in non-taxable territory. My query is that whether bank "A" need to pay service tax under RCM as he is already paid the service tax on charges received from his customer. Please suggest.

Also, please let me know any amendment on rule 3 CCR 2004.

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Mohit Singla

Mohit Singla (Expert)
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07 January 2015 The treatment done by your bank is accurate.
It would be treated as import of services for bank "A"
and
as per Rule 9 of the place of provision of service rule 2012.
Place of provision of specified services.- The place of provision of following services shall be the location of the service provider:-

(a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders;
(b) Online information and database access or retrieval services;
(c) Intermediary services;
(d) Service consisting of hiring of means of transport, upto a period of one month.

You will fall in clause (a) above
So POP is India
Hence service tax is applicable.
And its import of service therefore it covered in RCM and service tax need to be paid.

And for CCR amendments you can refer this link (ICAI supplementary)
http://220.227.161.86/35310finalsupp8.pdf

Querist : Anonymous

Querist : Anonymous (Querist)

07 January 2015 Thanks. But bank A is paying double tax on a single transaction. 1)Service tax on chages received from his customer. 2)RCM on interchange paid to bank B.

Mohit Singla

Mohit Singla (Expert)
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08 January 2015 But bank can take the cenvat credit of the tax paid under RCM. Their is no restriction on taking cenvat credit. But when assess pay the service tax under RCM, after payment he would be eligible for taking it cenvat credit and allowed to set off against service tax to be paid in case of normal charge on output services.

Like in your case
When bank charge from customers, then for paying the service tax liability they can use this cenvat credit, taken under RCM.

Mohit Singla

Mohit Singla (Expert)
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08 January 2015 For more details
You can refer rule 2, 3 & 4 of the CCR 2004.

Querist : Anonymous

Querist : Anonymous (Querist)

08 January 2015 Thanks. 100% cenvat credit can be taken on service taX paid under RCM.

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Mohit Singla

Mohit Singla (Expert)
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08 January 2015 yes, no restriction at all