DBS Bank Indian Branch's ECB Services To Singapore Office Not 'Intermediary Services': CESTAT Mumbai
On 17 August, the Mumbai Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that services provided by DBS Bank's Indian branch to its Singapore head office in connection with External Commercial Borrowings (ECB) cannot be treated as “intermediary services” for levy of service tax.
A Bench comprising Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban held that the Indian branch and DBS Bank Singapore were not two different persons but formed part of the same legal person. Therefore, activities carried out by the former for its head office could not be treated as services rendered by one person to another. The Tribunal observed:
“On going through the aforesaid factual details, it clearly transpires that the appellants banks' office in India and their head office DBS Singapore, are not two different persons, but are one and the same 'legal person'. Hence, on the prima facie view, there is no legal basis on which the activities provided by appellants to their head office can be treated as services rendered by one person to another person, in order to fall under the taxable category.”
The dispute arose after the Department found that DBS Bank's Indian operations had received income from its Singapore head office for activities relating to ECB loans provided to Indian borrowers. These activities included origination and referral, loan structuring and coordination, credit assessment, approval, disbursement, monitoring and credit facility management.
The Department treated the Indian branch as an “intermediary” between DBS Singapore and Indian borrowers and consequently demanded service tax for the periods from April 2013 to March 2016 and April 2016 to June 2017. It also imposed interest and penalties.
The Tribunal examined whether the activities could nevertheless fall within the definition of intermediary services. It noted that the Indian branch was involved in ECB financing activities on its own account and on a principal-to-principal basis with its head office. The remuneration received from DBS Singapore was also independent of the consideration involved in the services provided by DBS Singapore to its customers.
Further, the Bench that the requirements for treating the Indian branch as an intermediary were therefore not satisfied. It observed that the branch could not be regarded as an intermediary merely because it undertook certain activities in India in connection with loans ultimately provided by DBS Singapore.
It also relied on precedents concerning services supplied by Indian entities to overseas entities, including the decision in Chevron Philips Chemicals India Pvt. Ltd., which held that services rendered on one's own account could not be treated as intermediary services.
Accordingly, the CESTAT set aside the service tax demand and penalties and allowed DBS Bank's appeal.
Appearances: Prasad Paranjape, Advocate for the appellant (DBS Bank India Limited); Shashank Kumar Yadav, Authorised Representative for the Revenue.