Decision Today - Whether Money Transfer Into India is a taxable service

After the 2-member bench consisting of Mr. DN Panda & Mr. Mathew John pronounced a Difference of Opinion order in October, 2011, the matter was referred for opinion to a 3rd Member Mr. Rakesh Kumar. Last month, he held in favour of assessee and against the Department. Matter thereupon was remanded to the original bench for passing of a majority order.

Western Union Money Transfer through its main agents Paul Merchants Ltd. and Transcorp had been fighting a protracted battle in North & South Indian CESTAT. Most of the interim decisions of Bangalore CESTAT have been in favour of the sub-agents, holding that the services are not taxable, as these are not rendered in India. What is rendered in India is only the money to the recipient but the real service receiver is the person who hands over the money to the money transfer entity (say WUMT) who becomes the service provider. There is a contractual obligation between them and the requisite fee is paid by the remitter in a foreign
country and not by the recipient in India, who has no contractual obligation with anyone. The recipient can walk into any of the about 80,000 of such outlets in India, disclose the secret code sent by remitter to the Agent / sub-agent of (say) WUMT alongwith his / her identity. The Agent / sub-agent logs into the system of WUMT to confirm details and advances money to the recipient from his own pocket and claims it from WUMT for reimbursement, which is then paid to him through the main agent. As the amount of remittance and commission is received in foreign exchange by the first nominated bank, it is eligible as being considered as export of service under the previous EOS rules.

Key Questions being decided today :

(i) who is the recipient of the service provided by Agents and the sub-agents whether the WU located abroad or the persons in India who received the money sent by their relatives, friends etc. abroad through WU;

(ii) Whether the services, in question, have been used and consumed, abroad by the WU or used and consumed in India by the intended beneficiaries of the money sent by persons abroad through WU;

Further, whether the benefit of EOS be restricted only to the main agent in whose bank account the convertible foreign exchange or also to the sub-agent who gets the money in Indian currency thru the main agent , is also an issue. In this case, the commission was paid to him after TDS by main agent.

Or whether the sub-agent is also an agent of WUMT and thus eligible for similar exemption, was another query ?

Whether such sub-agents whose commission was below the threshold limit, eligible to SSI benefit, though they represented the brand name of a registered foreign entity, was ably argued by CA Ankit Gulgulia before CESTAT, Delhi.

Case on behalf of main agents was argued by Senior Advocate Joseph Vellapally, Advocates Mr. Rakesh Chitkara & Mr. Bipin Garg.

We shall bring you the final order today.

PS : 1.Applicability of this order may be only upto 30.06.2012. The Service Tax law has undergone a sea change from 1.7.12.  Even having an intermediary in India will take away the exemption, as per new law. The CBEC circular  no. 163/14/2012 issued  on 10-07-2012 Clarification on service tax on remittancs gives the impression that such services have become exempt. What is not said is the crux of the issue. More controversies on the way.

2. Weizmann, the main assessee has also been fighting a battle in CESTAT (Mumbai) which has yet to pronounce finally.



Rebecca Andrews