Rs 9.72 cr tax evasion at Axis Bank, GST body alleges

Goods and Services Tax Commissionerate, Mumbai, has alleged a tax evasion of Rs 9.72 crore by Axis Bank over fees charged by banking correspondents (BCs). The ‘cut and pay’ model of Axis Bank undervalued the domestic money transfer services, a source at the GST Commissionerate said, adding the practice was prevalent at other banks too.

Axis Bank provides domestic money transfer services to customers through its corporate BCs and further agents of the BCs. The Reserve Bank of India had permitted the banks to engage companies registered under the Indian Companies Act, 1956, excluding NBFCs, as their business correspondents in order to promote financial inclusion.

The BCs are permitted to charge the customers a service fee in the range of 1-1.5% of the remittance amount whereas the “residual/balance amount” specified in the agreements between the bank and the BCs is in the range of 0.2% to 0.6% of the remittance amount. The BC agents/retailers are allowed to retain their remunerations in cash out of the service fee collected from the customers and only the ‘residual/balance amount’ is passed on to the bank.

The service fee collected from the customers is inclusive of service tax/ GST.

This ‘residual/ balance amount’ is received into the ‘fee account’ of the bank, and the bank discharges its service tax/GST liability only on this amount.

As a result, GST is being evaded by the bank on the amount that is retained by the BC agents/ retailers in cash.   

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“As per RBI rules BC agents/ retailers can charge the customers a service fee in the range of 1-1.5 % of the remittance amount and 0.2% to 0.6 % is BC agent/retailer commission, which is part of total service fees and tax is not been paid on part of agent/retailer service fees,” said a source.

The BC model is governed by RBI guidelines issued vide DBOD no. BL.BC.43/22.01.009 dated 2010.

Axis Bank in an email response said, “Tax authorities in normal course initiate enquiries on various issues from time to time. The Bank provides the necessary information/documents required by the authorities. Such enquiry does not necessarily indicate any irregularity on the part of the Bank and many a times such enquiries are conducted across the sector.”

In the agreements entered into by Axis Bank with all its corporate bank correspondents barring one, instead of explicitly specifying the service charges to be collected from the customers by the bank correspondents agents on behalf of the Bank, only the ‘Residual/ Balance amount’ that accrues after deducting the direct costs and commissions payable to the BC agents has been specified.

As per clause 9, the bank (not the BC) is permitted to charge the customer a reasonable charge in a transparent manner. 

By Anurag Shah, DNA India