Whether Service Tax To Be Levied On Card-Issuing Bank For Interchange Fees
Case: Commissioner of GST and Central Excise v. M/s. Citi Bank N.A.
Coram: Justice KM Joseph and Justice S. Ravindra Bhat
Case No.: Civil Appeal No(s) 8228 of 2019
Court Observation: “If it is the aggregate amount (of which the interchange fee, is one part, and the acquiring bank’s amount, another part), the levy is satisfied. In such circumstances, the segregation of the whole MDR (which includes the interchange fee) by slicing it into two portions, i.e. the interchange fee and the acquiring bank’s charge, solely for the purpose of obliging all parties to reflect these in separate returns, only complicates issues.”
“…where the issuing bank and the acquiring bank are different, as is the case in the present case, it would be a case where both the issuing bank and the acquiring bank are rendering separate services as part of the credit card transaction.”
“As already noticed, the issuing bank, as part of its agreement with the card association and the acquiring bank, which is also under agreement with the card association, is engaged in the unique activity of being on the electronic platform hosted by the card association, which, admittedly, fixes the interchange fee and the amount to be earned by the issuing bank and acquiring bank and, under the auspices of which, transaction data, in millions, is processed by the issuing bank and it is only with the approval of the issuing bank that the merchant bank permits the purchase using the card. This is on the clear understanding that the amount will be paid by appropriate debit and credit in the accounts maintained, both by the issuing bank and acquiring bank.”
“In law, therefore, there could not be a gross amount by adding the value of two distinct services by two different service providers. Expression “gross amount” is to be understood with reference to the service provided or to be provided by a particular service provider and the provision does not appear to me to embrace within its scope, adding of what would be different gross amounts for arriving at the gross amount of the service provided by a particular service provider. In this context, I may notice that the words “gross amount charged” have been defined as, including payment in the many forms, which are mentioned therein, which includes debit notes, book adjustment and any amount credited or debited in any account.”
“In the context of the relationship of the respondent as issuing bank, interchange fee cannot be described as compensation fixed by the parties for use or forbearance of the borrowed money.”
“I am of the clear view that all the ingredients in this case stand satisfied in the settlement of the amount transacted under the credit card apart from the service which is performed by the issuing bank qua the card holder which constitutes a separate service.”
“…whether the service of settlement of an amount transacted on behalf of a cardholder is to be taxed as a whole or in addition to the taxation of the entire transaction, a separate part of that service is also to be subjected to levy.”
“The role of the issuing bank in the service provided by the acquiring bank to the merchant establishment is part of a single unified service falling under clause (iii) of Section 65 (33a) and it cannot be broken up into its components and classified as separate services for classification. This is a well accepted principle of classification.”
“However, having characterised the service to be a single unified service – wherein service tax, by way of business convenience, is collected from/remitted by the acquiring bank on the value (whole MDR which includes the interchange fee that is retained by the issuing bank) taxable for the single service rendered by both the acquiring and issuing bank – Citibank cannot be called upon to pay the service tax again as this would result in double taxation.”
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Keywords
Interchange Fees, Bank For Interchange Fees
