CGST dept says it undervalued its domestic money transfer service; other banks being investigated.
The anti-evasion wing of the Central Goods and Service Tax (CGST) department’s Mumbai Central Commissionerate claims to have cracked a modus operandi allegedly adopted by several banks to evade service tax or GST. Infamously known as the ‘cut and pay’ model, it purportedly involves undervaluation of the Domestic Money Transfer Services (DMTS) provided by the banks.
In a recent such case, an offence report had been made out against Yes Bank and its corporate business correspondents (BCs) for evasion of service tax/GST to the tune of Rs 38 crore. According to sources in the CGST department, an inquiry was initiated on DMTS provided by Yes Bank Ltd through its BCs, and the agents appointed by these BCs on behalf of the bank. Yes Bank, however, has said that it has not received any official notice from the CGST department in this regard.
The DMTS allows walk-in customers (without a bank account) to transfer funds to other bank accounts across the country, subject to a transaction limit and a monthly cap for every remitter. For this, the BCs charge customers a commission. This commission is returned to the bank, which must pay BCs a cut and pay the rest to the government as GST (from where the ‘cut and pay’ term has arisen). Some banks are allegedly transferring the entire commission back to the BCs and therefore evading GST.
In an e-mail response, the bank said, “We would like to clarify that YES BANK has not received any official order on the same. However, we have consulted tax experts in this matter who have confirmed that our interpretation of the law is correct and tenable. Furthermore, it is in line with the prevalent industry practice across all banks. We will continue to engage closely with the tax department to resolve this at the earliest. Domestic remittances are a very crucial and integral part of the financial inclusion agenda and benefit the most marginalised and financially excluded individuals and are furthering the national priority of a cashless economy.”
According to the RBI guidelines, the banks are allowed to charge customers a reasonable fee, besides paying their BCs and agents a commission for the services rendered.
“The bank has deliberately undervalued its DMTS. There has been an evasion of Rs 6 crore service tax and Rs 32 crore GST by the Yes Bank,” the CGST department has alleged. The e-mails seized during the investigation have revealed that Yes Bank allegedly permitted its BCs to collect a service fee not exceeding 1.5 per cent of the remittance amount from the customers for the DMTS. However, instead of passing this service fee collected from the customers on behalf of the bank, BCs allegedly pass only Rs 1.50 per transaction to the bank, which the bank showed as its income.
“It was also found that the bank was issuing incorrect invoices, as if it was providing services to the BCs and not the customers. This is contrary to the RBI guidelines governing the BC model,” the department has alleged in the offence report.
Source- Mumbai Mirror.