GST implications on foreign bank charges

We intend to apprise you on recent disputes being raised by revenue regarding GST implications on bank charges paid by Indian exporters & importers to foreign banks relating to forwarding documents and collecting/remitting payments.

• In international banking system, banks levy charges for facilitating letter of credit, forwarding documents and collection/remittance of funds during international trade. ?
• There could be one or more foreign intermediary bank involved in transaction depending on relationship of supplier’s bank with recipient’s bank. Foreign banks make remittance after deducing their charges. These charges are generally borne by recipient of money. For ease of understanding, flow of such transactions is diagrammatically represented as under:

• In abovementioned transaction, foreign banks cumulatively charge $ 20 which is ultimately borne by Indian exporter. Exporter’s Indian bank also charges $ 10.
• ?Recently, Indian exporters and importers are facing objections from revenue authorities that they have received services worth $ 20 from foreign banks in above example. Such services qualify as ‘import of service’ and Indian exporters and importers are liable to pay GST under RCM.

NITYA Comments: Section 2(93) of the CGST Act defines ‘recipient of service’ to mean person liable to pay consideration. In this transaction, foreign importer or Indian banks approach foreign banks to facilitate remittance. Indian exporters have no privity of contract with foreign banks. Indian exporter will not become service recipient merely because it bears bank charges.

In several rulings, CESTAT held that no Service Tax is payable under RCM by Indian exporters / importers in such cases. Trade Notice issued in Service Tax regime and FAQs issued by CBIC under GST regime also support this view. However, there is one High Court and one CESTAT ruling stating the contrary. Notably, SLP is pending before the Supreme Court against adverse CESTAT ruling. Indian exporters & importers are not liable to pay GST for aforesaid reasons. However, they can take a commercial call to pay GST on such services and claim ITC thereof.

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