Money changers providing service in relation to foreign exchange covered under banking and financial services - Service Tax - F. No. 341/44/2005

M.F. (D.R.) Letter F. No. 341/44/2005 - TRU, dated 6-10-2005 Money changers providing service in relation to foreign exchange covered under banking and financial services Subject Liability of money changers to pay service tax under banking other financial service - regarding. Please refer to your letter DOF NO V/DGST/21(9) Banking Service /2/2003 dated 8/9/2005 on the above subject. 2. On perusal of the statutory provisions regarding taxation of services provided in relation to foreign exchange broking it is seen that: Authorized dealers of foreign exchange are defined wider Section 65(8) of Finance Act, 1994. According to this section, authorized dealers are all person authorized under clause 2(c) of Foreign Exchange Management Act, 1999. (FEMA). All Money changers are authorized persons in terms of clause 2(c) of Foreign Exchange Management Act, 1999 (FEMA). Therefore all money changers are authorized dealers of foreign exchange under Section 65(8) of the Finance Act for the purpose of service tax levy. Authorized dealers of foreign exchange under Section 65(8) are included under the category of foreign exchange brokers defined under Section 65(46) of the Finance Act, 1994. Thus all money changers are foreign exchange brokers and are leviable to Service Tax under Section 65(12A) or 65(12b) depending on their constitution. 4. All money changers under Section 2(c) of FEMA are foreign exchange brokers as inferred above the therefore any service provided by such money changers would amount to foreign exchange broking. Money changers are licensed by the Reserve Bank of India in terms of Section 10(1) of FEMA, 1999. 5. The following points which govern the relationship between RBl and the money changers are relevant: Money changers are licensed by the RB! for the purpose of undertaking activities covered under section 10(1) of FEMA, 1999. Their activity of dealing in foreign currency is subject to conditions imposed by RBI. In terms of para 1.7 of the Exchange Control Manual, RBI may revoke the licence/authorization granted by it to a money- changer at any time if the holder of the licence authorization is found to have failed to comply with any condition subject to which it was granted or to have contravened any provisions of FERA 1973 or of any Rule, Notification, Direction or Order made there wider. Thus it is clear that money changers are only dealing in foreign currency as agents/licensees of RBI. 6. Service tax on foreign exchange broking services is applicable to services provided by any foreign exchange broker including banking company, financial institution, non banking finance company any body corporate, or commercial concern. Statutory provisions are the same in respect of all these entities which are engaged in the same activity. Money changers cannot go out of the purview of service tax on the plea that they are merely selling and purchasing foreign currency and not dealing or brokering on foreign exchange. Under Sale of Goods Act, Goods means every kind of moveable property but excludes money. Therefore transactions in foreign exchange do no fall under scope of sale. 7. In view of the statutory provisions, the services provided by money changers in relation to foreign exchange is covered under Banking and financial services as defined under 65(12) of the Finance Act and leviable to service tax under Section 65(105)(zm) or Section 65(105) (zzk) of the Finance Act, 1994.