service tax on forex margin of banks

sivaram (professional) (28 Points)

02 October 2010  

Dear All,

Is service applicable for the following transaction?

A customer comes to a bank - present a foreign cheque/foreign bill- the bank accepts the same and credits the party account- latter the bank informs the transaction to its treasury branch- the treasury branch sells the foreign currency purchased from the customer through its inter bank transaction- in this inter bank transaction it makes some profit- this profit is distributed to the branches-is the foreign currency margin (profit) liable for service tax. The currency purchased from the customer becomes the property of the bank and profit earned from selling the same is only an income.Hence this is only a profit which is not liable for service tax? Is my view correct?

Note: The bank already collects and pays service tax on the commission charged from customer as well as on the Rs.100/charged for the foreign currency transaction.

Question: Is the profit earned liable for service tax?