Levy of IGST under RCM on Overseas Bank Charges arises for realisation of export proceeds

[Niketan Dhumal]

Query : Levy of IGST under RCM on Overseas Bank Charges arises for realisation of export proceeds.

As per the audit observation since the overseas bank has provided the service to us we are liable to RCM as a service received falls under Import of service category

We are engaged in supply of export of goods in International Market and accordingly goods are supplied based on relevant export documents to our export customer, as per payment terms our customers located outside India pay us consideration in foreign currency through overseas banks as per facilitation of by our customer and we are not having any contract with overseas banking company and it is exclusive arrangement of our customer. Overseas banks transfer the remittance to our Indian Bank after deducting nominal bank charges and balance amount is converted to INR and credited to our bank account in Bank in India.

Our Views on above issue:

Any fee or conversion charges which are levied for sending foreign current remittance from abroad are not liable to RCM under GST as a person sending the money and the Banking company conducting the remittance are located outside India and such services are deemed to be provided outside India territory and are not liable to GST under RCM.

Place of provision of service in case of Overseas Bank charges:

Accordingly to qualify the service as a Import of services as per section 2(11) of IGST Act it is required to fulfill 3 condition i.e.

The supplier of service is located outside India

The recipient of service is located in India and

The place of supply of service is in India

In case of overseas bank charges, place of supply of service is outside India, hence it does not comply the requirement of category of “Import of services’ to qualify the said services to pay the GST under reverse charges and hence RCM is not applicable in above transaction.

Further as per section13(8)(a) it has been categorically specified that, in case of services rendered by banking company or a financial institution or a non-banking financial company, to account holder the place of supply shall be the location of supplier.

Kindly provide the views from experts on above query as GST audits observe that RCM is applicable and accordingly started reovery of the same from Exporters.

[Altamush Zafar]

As far as section 13(8) is concerned only services by bank to account holders is covered. Moreover as per the definitions given in the explanation I dont think that section 13(8) covers foreign banks. Therefore section 13(8) not applicable instead section 13(2) applicable.

Now in this arrangement if you are liable to pay to the foreign bank the charges then you are the recipient or if your bank is acting as an agent then also you are the recipient.

If the recipient was your customer then the foreign bank would have charges charges from him. Therefore prima facie it seems that it is import of service and RCM applicable

[Ravinesh Sinha]

Location of supplier i e bank is outside of India and location of recipient is in place india . It is import of service . Pl ensure whether deduction of charges is made by Indian Bank or transfer of money on net basis . If net basis ,it is import of services . Otherwise the Indian Bank is liable to gst on such transactions.

AI Summary

Import of services: overseas bank charges on export remittances may attract reverse charge depending on place of supply. Whether overseas bank charges on export remittances fall under the Reverse Charge Mechanism depends on whether the transaction meets the Import of Services conditions: supplier located outside India, recipient located in India, and place of supply in India. One view contends such charges arise outside India and are not taxable; alternative views stress that if the Indian exporter bears the charge or the Indian bank is an intermediary, the service is imported and RCM may apply, making the factual manner of deduction decisive.