No tax on transaction between overseas bank, India unit:CESTAT
Tax tribunal CESTAT has held that the transfer of funds from an overseas branch of a bank to its domestic unit will not attract service tax, as such transactions do not involve rendering any service.
Making a ruling on an appeal filed by Bank of Tokyo over a tax demand raised on the transfer of Rs 168 crore from its Japanese branch to its New Delhi unit, the Custom Excise & Service Tax Appellate Tribunal (CESTAT) said such a transaction would not attract service tax.
Bank of Tokyo had moved the funds belonging to Suzuki Motor Corporation of Japan in favour of subsidiary Suzuki Motor Cycle India, which has an account with Bank of Tokyo's New Delhi branch. "It is not possible to come to the conclusion that one branch of same legal entity renders services to another branch of same legal entity which can attract service tax... There are no transactions involving two different legal entities... The service, if any, is in the nature of self service," said CESTAT.
CESTAT further said that any transaction between two branches of the same bank can not be treated as relationship between a service provider and client. "The transaction between two units of the same legal entities cannot be treated as involving relationship of the service provider and client," said the Delhi bench of the CESTAT.
The tribunal also rejected tax officials' claim that the export of services by Bank of Tokyo amounted to unjust enrichment. "Even if there was to be an export of services by Bank of Tokyo, New Delhi Branch then, the service tax paid is refundable without reference to unjust enrichment," the tribunal said.
The tax department had directed the bank to pay tax of Rs 5.2 lakh on the transaction, which was opposed by the bank. Following the tax department's notice, the Bank of Tokyo had approached CESTAT against the order.
