Banking or Financial institution - Taxable Services - As appliable on or before 30-6-2012 - Service Tax

Banking or Financial Services (we.f. 16.7.2001 - Banking cos. and financial institutions including NBFCS) (w.e.f. 16.8.2002 - Other body corporate) (w.e.f. 10.9.2004 - Commercial concerns) (w.e.f. 16-5-2008 - trading in foreign exchange) Accounting Code for Service Tax: 00440173 Accounting Code for Interest and Penalty: 00440174 What is taxable - 65(105)(zm) Any service provided or to be provided to any person, by banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services; Meaning of Banking - 65(10) "banking" has the meaning assigned to it in clause (b) of section 5 the Banking Regulation Act, 1949; As per clause (b) of section 5 of the Banking Regulation Act, 1949; "Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise." Meaning of Banking Company - 65(11) "banking company" has the meaning assigned to it in clause(a) of section 45A of the Reserve Bank of India Act, 1934; As per clause (a) of section 45A of the Reserve Bank of India Act, 1934; " Banking company means a banking company as defined in section 5 of the Banking Regulation Act, 1949 (10 of 1949), and includes the State Bank of India, and subsidiary bank as defined in the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959), any corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), and any other financial institution notified by the Central Government in this behalf.; Meaning of Banking and Other Financial Services - 65(12) "banking and other financial services" means (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or any commercial concern, namely: (i) financial leasing services including equipment leasing and hire-purchase; Explanation. For the purposes of this item, "financial leasing" means a lease transaction where (i) contract for lease is entered into between two parties for leasing of a specific asset; (ii) such contract is for use and occupation of the asset by the lessee; (iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and (iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment; (ii) ***[deleted] (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing; (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services; (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; (vii) provision and transfer of information and data processing; and ( viii) banker to an issue services; and (ix) other financial services, namely, lending; issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, over draft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts; (b) foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or an authorised dealer in foreign exchange or an authorised money changer, other than those covered under sub-clause ( a ); Explanation . For the purposes of this clause, it is hereby declared that "purchase or sale of foreign currency, including money changing" includes purchase or sale of foreign currency, whether or not the consideration for such purchase or sale, as the case may be, is specified separately; Meaning of Issue - 65(59a) "issue" means an offer of sale or purchase of securities to, or from, the public or the holder of securities. Meaning of Body Corporate - 65(14) "body corporate" has the meaning assigned to it in clause (7) of section 2 of the Companies Act, 1956; As per clause (7) of section 2 of the Companies Act, 1956; "body corporate" or "corporation" includes a company incorporated outside India but does not include: (a) a corporation sole; (b) a co-operative society registered under any law relating to co-operative societies; and (c) any other body corporate (not being a company as defined in this Act) which the Central Government may, by notification in the Official Gazette, specify in this behalf." Meaning of Non Banking Financial Company - 65(74) "non-banking financial company" has the meaning assigned to it in clause (f) of section 45-I of the Reserve Bank of India Act, 1934; As per clause (f) of section 45-I of the Reserve Bank of India Act, 1934; "Non-banking financial company means- (i) a financial institution which is a company; (ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; (iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify." Meaning of Financial Institution - 65(45) "financial institution" has the meaning assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934; As per clause (c ) of section 45-I of the Reserve Bank of India Act, 1934; "Financial institution means any non-banking institution, which carries on as its business or part of its business any of the following activities, namely- (i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own; (ii) the acquisition of shares, stocks, bonds, debentures or securities is issued by a government or local authority or other marketable securities of like nature; (iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire Purchase Act, 1972 (26 of 1972); (iv) the carrying on of any class of insurance business; (v) managing, conducting, or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto; (vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lump-sump or otherwise, by way of subscription or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons, from whom monies are collected or to any other person; but does not include any institution, which carries on as its principle business- (a) agricultural operations; or (aa) industrial activity. Explanation: - For the purpose of this clause, "industrial activity" means any activity specified in sub-clauses (i) to (xviii) of clause (c) of section 2 of the Industrial Development Bank of India Act, 1964, the following activities have been specified as industrial activity: (b) the purchase or sale of any goods (other than securities) or the providing of any services; or (c) the purchase, construction or sale of immovable property, so, however, that no portion of the income of the institution is derived from the financing of purchases construction or sales of immovable property by other persons." ********************** A. As per Paragraph No 6. of Circular No. 96/7/2007 dated 23/8/2007 states that :- "6. This circular supersedes all circulars, clarifications and communications, other than Orders issued under section 37B of the Central Excise Act, 1944 (as made applicable to service tax by section 83 of the Finance Act, 1994), issued from time to time by the CBEC, DG (Service Tax) and various field formations on all technical issues including the scope and classification of taxable services, valuation of taxable services, export of services, services received from outside India, scope of exemptions and all other matters on levy of service tax. With the issue of this circular, all earlier clarifications issued on technical issues relating to service tax stand withdrawn." B. Further Circular No 96/7/2007 dated 23/8/2007 clarifies that :- Issue - 034.01 / 23.08.07 Moneychangers are persons authorized under section 7 of Foreign Exchange Management Act, 1973 to deal in foreign currency. Explanation given under Section 7 of the said Act states that 'dealing' means purchasing foreign currency in the form of notes, coins or traveller's cheques or selling foreign currency in the form of notes, coins or traveller's cheques. Whether services provided by a money changer in relation to dealing of foreign currency (buying or selling), at specified rates, without separately charging any amount as commission for such dealing, is liable to service tax as foreign exchange broking under 'banking and other financial services' [section 65(105) (zm)]? Clarification Moneychangers are authorized by RBI to buy and sell foreign exchange at the prevalent market rates. Buying or selling of foreign exchange by such persons without separately charging any amount as commission or brokerage does not fall within the scope of foreign exchange broking and is not liable to service tax under section 65(105)(zm). Issue - 034.02 / 23.08.07 'Asset management and all other forms of fund management' are liable to service tax under 'banking and other financial service' [section 65(12)]. Whether the amount charged as 'entry and exit load' from the investor by a mutual fund is liable to service tax as asset / fund management services under banking and other financial services [section 65(105)(zm)]? Clarification Entry load and exit load charged by a mutual fund are not for the purpose of management of assets. Thus, amount charged as "entry and exit load" are not to be treated as consideration received by an Asset Management Company for asset management and hence not liable to service tax under Banking and other Financial service [section 65(105)(zm)]. Issue - 034.03 / 23.08.07 Whether depository services and Electronic Access to Securities Information (EASI) services provided by Central Depository Services (India) Ltd., (CDSL) is liable to service tax under Banking and other Financial Services[section 65(105)(zm)]? Clarification Definition of "Banking and other Financial Services" specifically includes "provision and transfer of information and data processing [section 65(12)(a)(vii)]". Services provided by CDSL falls within the scope of "provision and transfer of information and data processing". These services are not in the nature of "on-line information and data base access or retrieval services". Therefore, the depository services provided by CDSL including Electronic Access to Securities Information (EASI) for a fee are liable to service tax under Banking and other Financial Services. [section 65(105)(zm)] Issue - 034.04 / 23.08.07 Services provided by banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern in relation to asset management including portfolio management, and all forms of fund management, is leviable to service tax under "banking and other financial services" [section 65(105)(zm) and section 65(12)]. The said taxable service also includes cash management services provided. Services are provided in relation to chit funds. Chit Funds are of two types, namely:- (a) Simple Chit Funds: In this case, members agree to contribute to the fund a certain amount at regular interval. Lots are drawn periodically and the member, whose name appears, gets the periodical collection. No separate amount is charged from the members. (b) Business Chit Funds: In this case, there is a promoter known as foreman who draws up the terms and conditions of the scheme and enrolls subscribers. Every subscriber has to pay his subscription in regular installments. The foreman charges a separate amount for the services provided. Some States prescribe a ceiling limit for the amount to be charged by such promoter for the services provided. Commission amount is retained by the promoter as consideration for providing the services in relation to chit fund. Whether services provided in relation to chit fund is leviable to service tax under "banking and other financial services" or not? Clarification Reserve Bank of India has clarified that the business of a chit fund is to mobilize cash from the subscribers and effectively cause movement of such cash to keep it working and, therefore, the activity of chit funds is in the nature of cash management. (a) In the case of Simple Chit Funds, no consideration is paid or received for the services provided and, therefore, the question of levy of service tax does not arise. (b) In the case of Business Chit Funds, cash management service is provided for a consideration and, therefore, leviable to service tax under "banking and other financial services". *************************