Services supplied by Bank, NBFC or Financial Institution to account holders :
In case of services supplied by a banking company, or a financial institution, or a non-banking financial company, to account holders, the place of supply shall be the location of the supplier of service – section 13(8) (a) of IGST Act.
Really, this provision is applies only to Indian bank or Financial Institution, as a foreign bank can never be banking company or Financial Institution as defined “Account” means an account bearing interest to the depositor, and includes a non-resident external account and a non-resident ordinary account – Explanation (a) to section 13(8) of IGST Act.
“Banking company” has the meaning assigned to it in clause (a) of section 45A of the Reserve Bank of India Act, 1934 — Explanation (b) to section 13(8) of IGST Act.
[Thus, a foreign Bank providing service from outside India cannot be ‘banking company’. Hence, general provision of place of supply of service will apply i.e. location of recipient of service will be place of supply of service].
“Financial institution” has the meaning assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934 — explanation (c) to section 13(8) of IGST Act.
“Non-banking financial company” means-
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as its principal business the receiving of
deposits, under any scheme or arrangement or in any other manner, or lending in any manner; or
(iii) such other non-banking institution or class of such institutions, as the Reserve Bank of India may, with the previous approval of the Central Government and by notification in the Official Gazette
specify- explanation (d) to section 13(8) of IGST Act.
CBE&C’s ‘Taxation of Services : An Education Guide’ published on 20-6-2012 states as follows –
Para 5.9.3 What are the services that are provided by a banking company to an account holder (holder of an account bearing interest to the depositor)? – Following are examples of services that are provided by a banking company or financial institution to an “account holder”, in the ordinary course of business:-
(i) services linked to or requiring opening and operation of bank accounts such as lending, deposits, safe deposit locker etc.;
(ii) transfer of money including telegraphic transfer, mail transfer, electronic transfer etc.
Para 5.9.4 What are the services that are not provided by a banking company or financialinstitution to an account holder, in the ordinary course of business, and will consequently be
covered under another Rule? – Following are examples of services that are generally NOT provided by a banking company or financial institution to an account holder (holder of a deposit account bearing interest), in the ordinary course of business:-
(i) financial leasing services including equipment leasing and hire-purchase;
(ii) merchant banking services;
(iii) Securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing;
(iv) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services;
(v) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy;
(vi) banker to an issue service.
In the case of any service which does not qualify as a service provided to an account holder, the place of provision will be determined under the default rule i.e. the Main Rule 3 of POPS Rules (now section 10(2) of Model IGST Law]. Thus, it will be the location of the service receiver where it is known (ascertainable in the ordinary course of business), and the location of the service provider otherwise.