Interchange fee service tax liability on issuing banks overturned; demand, interest and penalty set aside on appeal

Interchange fee charged by an issuing bank was examined as consideration for services and whether it attracted service tax; the tribunal precedent was applied to conclude interchange fees are not taxable, leading to setting aside of the demand, interest and penalty against the scheduled commercial bank. The decision therefore negates service tax liability on such interchange fees for the taxpayer concerned and allows the appeal, with consequential reliefs to follow.

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Issues: Whether interchange fees received by the issuing bank attract service tax.

Analysis: The Tribunal examined whether the interchange fee charged to the issuing bank constitutes consideration for a taxable service liable to service tax with effect from 01.07.2012. The Tribunal relied on its earlier decision in the appellant's own case for an earlier period and applied that ruling to the facts before it, addressing the legal characterisation of interchange fees as not attracting service tax.

Conclusion: The demand of service tax on interchange fees received by the issuing bank is set aside and the appeal is allowed in favour of the assessee.

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