DBS Bank India Limited Vs Commissioner of CGST & Central Excise: CESTAT Mumbai Rules ECB Support Services Are Not Intermediary Services
Background and Context
The CESTAT Mumbai, in a significant ruling concerning the scope of "intermediary services" under the service tax framework, adjudicated upon a dispute involving DBS Bank India Limited — the successor entity to the Indian operations of DBS Bank Limited, Singapore. The Tribunal examined whether support services rendered by the Indian banking entity to its Singapore head office, in connection with External Commercial Borrowings (ECB) extended to Indian borrowers, could be brought to tax under the head of intermediary services.
The proceedings arose from Order-in-Original No. MUM.SOUTH/CGST/Pr.Commr-110-111/20-21 dated 24.03.2021, issued by the Commissioner of CGST & Central Excise, Mumbai South Commissionerate. The Tribunal ultimately set aside that order and ruled in favour of the assessee.
Factual Background
Organizational History of DBS in India
DBS Bank's Indian operations were originally constituted as a Foreign Branch of DBS Bank headquartered in Singapore. Following the Reserve Bank of India's 2013 policy framework — introduced in the aftermath of the 2008 global financial crisis to address systemic risks associated with "too big to fail" and "too connected to fail" institutions — RBI issued a Scheme for Setting up of Wholly Owned Subsidiaries (WOS) by foreign banks in India under Section 35A read with Section 44A of the Banking Regulation Act, 1949. Pursuant to this framework, RBI approved the establishment of DBS Bank India Limited as a wholly owned subsidiary. With effect from 01.03.2019, the entire Indian business was transferred to DBS Bank India Limited under Section 44A of the Banking Regulation Act, 1949.
Discovery During Audit and Demand Raised
In the course of an EA-2000 audit of the assessee's books of accounts, the Department noticed receipts classified under "Commission & Brokerage and Miscellaneous Income" from DBS Singapore during Financial Years 2012–2013 to 2015–2016. On scrutinising the agreement dated 28.05.2015 executed between the Indian entity and its Singapore head office, the Department concluded that the activities performed — namely origination/referral, structuring and coordination, credit assessment and approval, disbursement, monitoring, and credit facility management — amounted to intermediary services rendered between DBS Singapore and Indian borrowers.
Following pre-Show Cause Notice consultation and the assessee's responses, the Department issued a Show Cause Notice dated 17.10.2018 and a Statement of Demand dated 01.10.2019, proposing service tax for two periods:
- 01.04.2013 to 31.03.2016
- 01.04.2016 to 30.06.2017
The Department invoked the extended limitation period under the proviso to Section 73(1) of the Finance Act, 1994, and also proposed penalties under Sections 77 and 78 of the Finance Act, 1994. The Commissioner confirmed all proposals in the impugned order, leading the assessee to prefer an appeal before the Tribunal.
Assessee's Submissions
The assessee's counsel advanced the following key contentions before the Tribunal: