Relief to Standard Chartered Bank: CESTAT rules Mere Expense Allocation from SCB-UK to SCB-India not a Taxable Service [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the mere allocation of expenses from Standard Chartered Bank UK (SCB-UK) to its Indian branch (SCB-India) does not constitute a taxable service under the reverse charge mechanism unless a clear service provider-service recipient relationship is established.

SCB-India, the appellant, is a branch of Standard Chartered Bank, headquartered in London. SCB-UK incurred various operational and administrative expenses for its global operations, which were proportionately allocated to all its branches, including SCB-India, based on revenue, employee headcount, and profitability.

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The department argued that these allocations qualified as "Business Support Services" (BSS) and were subject to service tax under Sections 66A, 66B, and 67 of the Finance Act, 1994. The tax authorities argued that SCB-UK and SCB-India are distinct entities under Explanation 3 to Section 65B(44) of the Finance Act so, the allocated expenses constituted consideration for services, making SCB-India liable to service tax under the reverse charge mechanism. The department issued a show cause notice demanding tax on these expenses.

The Commissioner of CGST & CX, Mumbai South, partially upheld the tax demand, confirming Rs. 366.46 crore but dropping Rs. 29.84 crore for the period prior to May 1, 2011, citing that "Business Support Services" did not include "operational or administrative assistance" before that date. Both SCB-India and the department appealed the order before CESTAT.

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The appellant’s counsel argued that expense allocation was a cost-sharing mechanism and not a taxable service. The appellant’s counsel also argued that there was no contractual agreement, invoice, or direct payment between SCB-India and SCB-UK for these expenses. The appellant relied on previous rulings, including Tech Mahindra Ltd. v. CCE, which held that intra-company cost allocation without identifiable service provision does not attract service tax.

The revenue countered that SCB-UK’s global operations benefited SCB-India, making the allocated costs taxable under "Business Support Services." The department argued that SCB-India had claimed these expenses under the Income Tax Act, further proving their relevance to its business operations.

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A two-member bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) observed that the mere allocation of expenses, without a contractual obligation, service agreement, or direct payment, did not establish a service provider-service recipient relationship. The tribunal observed that the reverse charge mechanism applies only when services are explicitly provided, and consideration is exchanged.

The tribunal also held that "Business Support Services" did not include "operational or administrative assistance" before May 1, 2011, making any tax demand for the prior period legally unsustainable. The revenue’s appeal was dismissed, and SCB-India was granted relief from service tax liability on the allocated expenses.

To Read the full text of the Order CLICK HERE

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