Central Tax Circulars

CGST Circular 86/2019

To,

The Principal Chief Commissioners/ Chief Commissioners/ Principal
Commissioners/ Commissioner of Central Tax (All) /The Principal Director
Generals/ Director Generals (All)

Madam/Sir,

Subject: GST on Services of Business Facilitator (BF) or a Business
Correspondent (BC) to Banking Company- reg.

1) Representations have been received seeking clarification on following two issues:

(i) What is the value to be adopted for the purpose of computing GST on
services provided
by BF/BC to a banking company?

(ii) What is the scope of services provided by BF/BC to a banking company
with respect to
accounts in its rural area branch that are eligible for existing GST
exemption?

2) The matter has been examined. The issues involved are clarified as
follows:

2.1 Issue 1: Clarification on value of services by BF/BC to a banking
company: As per
RBI’s Circular No. DBOD.No.BL.BC. 58/22.01.001/2005-2006 dated 25.01.2006
and subsequent instructions on the issue (referred to as ‘guidelines’
hereinafter), banks may pay reasonable commission/fee to the BC, the rate
and quantum of which may be reviewed periodically. The agreement of banks
with the BC specifically prohibits them from directly charging any fee to
the customers for services rendered by them on behalf of the bank. On the
other hand, banks (and not BCs) are permitted to collect reasonable service
charges from the customers for such service in a transparent manner. The
arrangements of banks with the Business Correspondents specify the
requirement that the transactions are accounted for and reflected in the
bank’s books by end of the day or the next working day, and all agreements/
contracts with the customer shall clearly specify that the bank is
responsible to the customer for acts of omission and commission of the
Business Facilitator/Correspondent.

2.2 Hence, banking company is the service provider in the business
facilitator model or
the business correspondent model operated by a banking company as per RBI
guidelines. The banking company is liable to pay GST on the entire value of
service charge or fee charged to customers whether or not received via
business facilitator or the business correspondent.

3) Issue 2: Clarification on the scope of services by BF/BC to a
banking company with
respect to accounts in rural areas: It has also been requested that the
scope of exemption to services provided in relation to “accounts in its
rural area branch” vide Sl. No. 39 of Notification No. 12/2017- Central Tax
(Rate) dated 28.06.2017 be clarified. This clarification has been requested
as the exemption from tax on services provided by BF/BC is dependent on the
meaning of the expression “accounts in its rural area branch”.

3.1 It is clarified that for the purpose of availing exemption from GST
under Sl. No. 39 of
said notification, the conditions flowing from the language of the
notification should be satisfied. These conditions are that the services
provided by a BF/BC to a banking company in their respective individual
capacities should fall under the Heading 9971 and that such services should
be with respect to accounts in a branch located in the rural area of the
banking company. The procedure for classification of branch of a bank as
located in rural area and the services which can be provided by BF/BC, is
governed by the RBI guidelines. Therefore, classification adopted by the
bank in terms of RBI guidelines in this regard should be accepted.

4) Difficulty if any, in the implementation of this Circular may be
brought to the notice
of the Board.