TaxTMI 
TaxTMI 
2015 (8) TMI 686
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.... banking company, a financial institution, a non-banking financial company or any other body corporate or a commercial concern, towards settlement of payments to an acquiring bank and a merchant establishment (ME), in relation to sale transactions at such establishment also constitute credit card services, in 'Banking and Other Financial Services' (BOFS), a taxable service defined and enumerated in the Finance Act, 1994 (the Act), is the core issue falling for our consideration. The period involved is 16-07-2001 to 30-04-2006, during which credit card services was enumerated within Banking and other Financial services, a taxable service introduced w.e.f 16-07-2001 by the Finance Act, 2001. On and from 01-05-2006 credit card services was deleted from BOFS and incorporated into a distinct service, which we shall for convenience refer to as card services. 2. We are assembled to answer the reference made by a Ld. Division Bench vide the order dated 16-08-2013 in ST. Appeal Nos. 143 to 145 of 2007 and 117 of 2010, being appeals preferred by Revenue and an assessee Bank, against adjudication orders. The issues referred are exclusively a classification issue. 3. The order dated 16-0....
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....y and misconceived. Per contra, Revenue urges that the ABN Amro Bank reasoning is impeccable and its conclusion unexceptionable. The reference order however records empirical reservations to the trajectory and coverage of credit card services in BOFS, diametrically contrary to the ABN Amro ruling, as under: In the ABN Amro case, a co-ordinate bench of this Tribunal has taken a view that in view of the expression "in relation to" preceding banking and financial services occurring in taxable service defined under section 65(72)(zm) and such an expression is expansive in nature and scope, and therefore all services rendered in relation to credit card services, whether by merchant establishments, acquiring banks or others would be chargeable to service tax even prior to 1-5-2006. We respectfully disagree with the said view taken for the following reason. The expression "in relation to" qualifies only the "credit card services" and not the customer who is the service recipient nor the service provider, the issuing bank. Thus only the scope of credit card services is expanded by the said term. The credit card services comprises of a number of services such as extending credit fo....
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....k (which issued credit cards) and had received "Interchange fee" from acquiring banks. It was the specific contention of the appellant (before the Tribunal) that since it did not serve any customer, while making settlements of dues of merchant establishments, arising out of sales transactions concluded through credit cards, "Interchange fee" was not a consideration received on rendition of credit cards services as defined in Section 65(10) or 65(12) read with Section 65(72)(zm) and it consequently incurred no liability to tax. Per contra, Revenue contended that relevant provisions (as extant prior to 01.05.2006 as well) were comprehensive enough to authorise levy and collection of service tax on consideration or commission received or retained by either an "issuing bank" or an "acquiring bank" in respect of transactions of sale and purchase conducted through a credit card. Revenue also contended that amendments to the Act introduced w.e.f. 01.05.2006, deleting credit card services from the ambit of BOFS and relocating it along with other card services under Section 65(33a) read with Section 65 (105) (zzzw), did not impact or restrict the scope of credit card services enumerat....
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....r while procuring goods or services (so as to safeguard against unauthorized use). • A card holder makes a purchase at an ME; completes the transaction by swiping his card, employing the swipe machine provided to the ME by the acquiring bank; and signs a transaction slip generated by the swipe machine. This is the point of sale (POS). • The network platform provided by the card association facilitates authentication of the card employed at the ME and clears the use of the card for concluding the transaction, by validating the card use. • The ME deposits transaction slips with the acquiring bank via the settlement procedure protocol. • The card association network (Visa or Mastercard) generates reports for merchant settlement and forwards these to the acquiring bank. The acquiring bank (within a couple of days) settles payments to the merchant establishment after deducting a small percentage towards discount/ commission amount (ranging from 3% to 5%). This amount is called the merchant establishment discount. • A settlement report is forwarded to the issuing bank via the interchange network maintained by the card assoc....
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....association. The issuing bank assumes the obligation to reimburse the acquiring bank less the interchange fee the issuing bank may retain. Card associations provide the network settlement platform, generate reports on ME transactions, forward these to the acquiring bank, forward settlement reports to issuing banks and thus facilitate credit card use, under agreements between card associations and its members which include issuing and acquiring banks. The fee or charges, if any, collected by card associations from its member banks is however not the subject matter of any of the disputes involved in this reference. 11. The respective parties are agreed that the fees/ charges / amounts collected by an issuing bank from its card holder is a consideration received for rendition of credit card services, and that this is a legitimate taxable value. The dispute is confined to taxability of the interchange fee earned by the issuing bank and the ME discount retained by the acquiring bank while settling dues of the ME with which an acquiring bank has a contractual agreement obligating settlement of such dues after retaining its commission/ discount. Assessees who participated in the hearin....
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.... the Act defined the expressions banking; banking company; and BOFS. Sub section (11) of Section 65 expanded the scope of the service provider in BOFS to include any other body corporate, as well. The components of BOFS were however unamended. Finance Act, 2003, w.e.f. 14.05.2003 relocated the definition of BOFS to sub-section (12) of Section 65. This amendment also added foreign exchange broking provided by a foreign exchange broker other than those covered under sub-clause (a) to the category of services enumerated in the definition of BOFS. BOFS now read: (12) banking and other financial service means- • the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate, namely:- • financial leasing services including equipment leasing and hire-purchase by a body corporate; • credit card services; • merchant banking services; • securities and foreign exchange (forex) broking; • asset management including portfolio management, all forms of fund management, pension and management, custodial, depository and trus....
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....ayment updation and statement generation; • by any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card. Explanation.- For the purposes of this sub-clause, "acquiring bank" means any banking company, financial institution including non-banking financial company or any other person, who makes the payment person who accepts such card; in relation to joint promotional cards or affinity cards or co-branded cards; in relation to promotion and marketing of goods and services through such card; by a person, to an issuing bank or the holder of such card, for making use of automated teller machines of such person; and by the owner of trade marks or brand name to the issuing bank under an agreement for use of the trade mark or brand name and other services in relation to such card, whether or not such owner is a club or association and the issuing bank is a member of such club or association. Explanation. - For the purposes of this sub-clause, an issuing bank and the owner of trade marks or brand name shall be treated as separate persons;" Secti....
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....respectively. (d) Board Circular dated 09.07.2001 clarified the scope of credit card services and the legislative intent underlying introduction of this aspect of the taxable services, catalogued in BOFS. The circular explains that it is a service whereby credit facility is provided to a customer. Credit facility in respect of credit cards, is provided by the issuing bank to its card holders and to none else. Services provided by an issuing bank to the acquiring bank or those provided by the acquiring bank to the ME, are not credit facility and in the transactional sequence, neither the acquiring bank nor the ME receive any credit facility; (e) The expression Credit Card Services is not defined nor its scope annotated in the Act, during the relevant period. The general meaning of the term connotes provision of a credit facility for purchase of goods and services. Such facility is provided only by an issuing bank to its card holders; (f) An acquiring bank merely undertakes payment to or bill discounting of, the ME. It undertakes the liability to settle payments for goods or services provided by the ME and consumed by the card holder, irrespective of the ac....
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....any service provided in relation to credit card services and not in relation to credit card. (i) The right of an ME to receive payment from the acquiring bank is subject to strict conformity with and compliance of terms and conditions of the agreement between these parties. The authenticity and validity of the credit card, authentication of the transaction by a card association's network platform and several other conditions in such agreement must be fulfilled before the right of the ME for settlement of its dues under the credit card transaction, arises. An agreement between the acquiring bank and the ME also comprehends several other types of cards such as debit cards, which are admittedly outside the purview of the taxable service during the relevant period. (j) W.e.f. 01.05.2006 "Card Service" is introduced as a distinct service defined in Section 65(33a) read with Section 65(105)(zzzw). With effect from this date the ambit of the service was also expanded, to include several categories of cards and a variety of activities in relation to card transactions as well. These were explicitly brought within the scope of the service with clarity and precision. Only si....
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....he width of its coverage must nevertheless be understood in a context. Precedents explain that the phrase "in relation to" must be read as meaning a direct and proximate relationship to the subject matter to which the expression is intended to apply. On Revenue's interpretation, since a credit card transaction cannot be concluded without authentication and settlement facilitation provided by employing telephony or internet network, consideration charged by telephone / telecommunication and internet service providers would equally fall within the scope of Credit Card Services. Such an interpretation would lead to absurd and indeterminate results. (o) Assessees further contend that if service tax is held to be leviable on interchange fee and ME discounts, cum tax benefit as provided in Section 67(2) of the Act should be allowed; that extended period of limitation cannot legitimately be invoked since there is a bonafide dispute about the interpretation and scope of Credit Card Services in BOFS; that penalties under Sections 76 and 78 should be dropped as there was a reasonable cause for non-remittance of tax; and penalties under Sections 76 and 78 being mutu....
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....consideration. (iv) Agreements between ME's and acquiring banks clearly indicate that ME's maintain an account with acquiring banks with whom a contract is entered into for settlement of payments arising out of credit card transactions. (v) The judgment of the Delhi High Court in CIT vs. JDS Apparels Pvt. Ltd. Dt.18.11.2014 in IT Appeal.No.608/2014, clearly rules that an acquiring bank provides banking services to the ME while protecting interests of the card holder and that the amount retained by the acquiring bank was the fee for rendition of such service. (vi) To constitute a customer it is not necessary that the relationship should be continuous or for any specified duration. The relationship of a bank and a customer commences as soon as the first transaction is entered into. (vii) Credit card services commence with issuance of the card by the issuing bank. These services however do not end with swiping of the card at the ME. The entire process by which credit card transactions are successfully concluded i.e. issuance of the card; the card holder obtaining goods or services at the ME; authentication and verification of the card through the ne....
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....ices has retrospective operation, is misconceived. This is so since all services provided by an issuing bank and an acquiring bank, which are necessary and integral to effectuation of sale of goods or rendition of services through the instrumentality of credit cards are services provided in relation to credit card services. Sub-clause (iii) of Section 65(33a) need not be considered as having a retrospective operation. The difference in phraseology in enumeration and definition of credit card services in BOFS and of card services (during pre and post 01.05.2006 periods) are mere differences in drafting techniques employed and do not restrict the scope of credit card services in BOFS to services provided between an issuing bank and its card holder. ANALYSES: 18. To ascertain, whether services provided by an issuing bank to an acquiring bank and by an acquiring bank to ME amount to credit card services under BOFS and consequently whether interchange fee and ME discount earned by these banks amount to consideration received for rendition of credit card services, two aspects need to be considered: (a) Whether an issuing bank could be considered a customer of an acquiring ....
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....es on railway fare, fuel charges, and utility bill payments, charges on over limit accounts and late payment fee, interest on delayed payment, interest on revolving credit, etc. The fee may vary based on the type of card and from bank to bank. All these charges, including interest charges are made for the service rendered. Hence they all form part of the value of the taxable service in this case. From the clarification it is apparent that the service provider is the bank which provides credit facilities to its customer, for purchase of goods and services apart from providing cash advances; such services are provided by nationalised banks, multi-national banks and private banks; and the consideration for rendition of credit card services is by way of joining fee, additional card fee, annual fee, replacement card fee, cash advance fee, charge slip/ statement retrieval fee, surcharge/ service charges on railway fare, fuel charges etc; charges on over limit accounts; late payment fee; interest on delayed payment; interest on revolving credit and like fees/charges. All these charges including interest charges are collected for the rendition of credit card services and comprise the ta....
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....r issued by RBI on credit card operation of banks. This circular specifies rules, regulations and standards and identifies good practices for guidance and compliance by issuing banks/ NBFC's for credit card business. The master circular sets out the background and structure of credit card operations; basic features and types of credit cards; fair practices to be adopted; methodology for issue of cards; interest, trade and other charges which may be collected; guidelines for avoidance of wrong billing; norms for protection of customer rights; customer confidentiality; fair practices in debt collection; mechanism for redressal of grievances; internal control and monitoring systems; fraud control; and declares the right of RBI to impose penalties on banks / NBFC's for violation of guidelines contained in the circular. Assessees point out that guidelines in this master circular also indicate that credit facility provided by an issuing bank to a card holder is the singular context in which credit card facilities are conceived and the master circular does not deal with or advert to any services provided to an acquiring bank or the ME. Assessees also refer to textual authorities, of Ch....
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....K.B. 297. While dismissing the appeal, Bankes L.J. observed that while the most ordinary meaning of a customer of a bank, is a person who keeps an account at the bank, it must be noticed that banks do various kinds of business and in all those, individuals or companies with whom they do business may properly be called customers, whether they be individuals or banks; that in the present case, the class of business of collecting cheques was done between banks and it seems impossible to contend, as a matter of law, that the bank for which the respondents were doing the business, was not, in reference to that business, their customer. Atkin L.J. however recorded a caveat and to this extent. He observed that where a non-clearing bank regularly employs a clearing bank to clear its cheques, the non-clearing bank would be a customer of the clearing bank. However, a non-clearing bank may have a lay customer and would employ a clearing bank as its bank for collection if the cheque is to be cleared with the Clearing House; and it may well be that the agent for collection collects for a customer when the cheque is collected for the benefit of the customer of the non clearing bank; but th....
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....vided by an issuing bank to an acquiring bank or the later bank to the ME, were not intended by Parliament to fall within the scope of services provided in relation to credit card services. Only services provided by an issuing bank to its card holder comprised extension of credit facilities and these alone were covered under BOFS. Both parties provided sample copies of agreements entered into between the ME and an acquiring bank. The agreements are substantially similar and indicate a continuing relationship (during the tenure of agreement) between the ME and the acquiring bank. Agreements set out reciprocal obligations of the parties and incorporate terms and conditions, the compliance whereof would trigger the reciprocal obligations specified in the agreements. Under these terms, an acquiring bank inter-alia undertakes to accept all valid charges transacted by card holders excluding those whose names appear on a current warning bulletin; to pay the ME the amount payable on authorized card transactions, after deducting fee/ commission service at the stipulated rate; with a further stipulation that the acquiring bank would be entitled to charge back the charges indicated i....
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....finition and enumeration of BOFS as a taxable service. This is not to say that other statutes may not expand or restrict the scope of the expression, customer of a bank. We accordingly conclude that in the context of credit card services in BOFS, as the taxable service is defined and enumerated, acquiring bank and the ME could be considered to be a customer of the issuing bank and an acquiring bank, respectively. WHETHER INTERCHANGE FEE AND ME DISCOUNT FORM PART OF THE TAXABLE VALUE OF BOFS: 20. Whether interchange fee or ME discount amount to consideration received for rendition of credit card services depends on whether services provided by an acquiring bank to the ME and those provided by an issuing bank to the acquiring bank fall within the ambit of services provided in relation to credit card services. Relying on the Board Circular dated 09.07.2001, RBI Notification dated 12.05.2001 and RBI master circular on credit card operation of banks (referred to in the previous para), assessees contend that irrespective of whether ME or an acquiring bank is a customer of an acquiring bank and the issuing bank respectively, services provided by a bank other than to its card h....
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....rchaser who fraudulently uses the bank card as a means of payment yet constitutes a supply of goods within the meaning of the relevant provisions of applicable Council Directives and consequently in the context of such transfer, the payment made by a third party under an agreement concluded between it and the supplier of those goods, by which the third party has undertaken to pay the supplier for goods sold by the latter to purchasers using such a card as a means of payment, constitutes "consideration" within the meaning of the relevant Directives and Articles In In Re Charge Card Services, the Court of Appeal held that transactions using a credit or charge card are made in the context of an underlying scheme of separate bilateral contracts; between the card company and the supplier, and between the company and the card holders, whereby suppliers agreed to receive cards towards payment for the goods and card holders were entitled to use the cards to commit the card issuing company to honour its obligation to pay suppliers. The card holders were obliged to pay the issuing company the full price charged by the supplier; and there was no general principle of law that a method of pa....
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....ded by the subsidiary. The card holder thus presumptively signed two contracts, one for remittance of a percentage to the card handling entity and the other for a substantial percentage of the total consideration to the ME. Allowing Revenue's appeal, the Court held that for a customer paying by card, once the card is accepted at the till the transaction is completed in relation to the store and settlement of payment obligations resulting from use of the card is a matter between the store and the card issuer. The purchaser has nothing to do with that, whatever may occur between the card issuer and the store or via the acquirer, where there is one. Even if the documentation seen by the customer/ card holder could otherwise be read as indicating that the customer was required to contract with the card handling entity, contracts are not made by mere assertion. Consequently, the natural interpretation of the course of events and documentation accordingly would be that any card handling, other than that covered by the agreement between the card holder and the card issuer was and remains the responsibility of the ME accepting the card in discharge of the price, ruled the Court. I....
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....f the core supply of the respondents transactions and this was exempt under the relevant EC Council Directive, ruled the Court. Provisions of Section 131 of the Negotiable Instrument Act, 1881 are referred on behalf of assessees, in support of the contention that a customery relationship cannot be said to arise between issuing bank and an acquiring bank and between an acquiring bank and the ME. This statutory provision does not, in our view, assist in identifying the scope of the expression "a customer" in the context of BOFS. The several decisions, of EEC Courts and of the Court of Appeal notice and recognise existence of distinct contractual arrangements between an issuing bank and a card holder; the ME and an acquiring bank; an acquiring bank and the issuing bank; and between issuing and acquiring banks and another entity which provides services such as netting - off services, as seen in the facts of FDR Limited. The existence of such distinct agreements and the legal consequences thereof were however considered in the context of the relevant legislation/ norms, whether VAT legislation or Directives of EEC Council. In the context of BOFS, in our considered view, these deci....
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....ity to the card holder. To buttress this line of interpretation assessees refer to the definition of card services w.e.f. 01.05.2006. 22. As noticed earlier, card services were introduced w.e.f. 01.05.2006, defined in Section 65(33a). Section 65(105)(zzzw), the enumerative provision states that services provided to any person (not merely a customer), by any other person in relation to credit card, debit card, charge card or other payment card service in any manner is a taxable service (emphasis added). Clause (33a)(i) defines an "issuing bank" as a banking company, financial institution including a non-banking financial company or any other person (instead of, any other body corporate), which issues such a card to a card holder. Sub-clauses (ii) to (vii) of this provision enumerate categories of services which fall within the scope of the taxable service. Sub-clause (ii) enumerates receipt and processing of applications, transfer of embossing data to issuing bank's personalisation agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation. Su....
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....¢ Services enumerated in sub-clauses (i), (ii), (iii), (vi) and (vii) could well be conceived as those provided in relation to credit card services as well. Assessees urge that in the definition of BOFS, any service provided to a customer in relation to credit card services is the defined taxable service. As services enumerated in sub-clauses (i) to (iii) and (vi) and (vii) of Section 65(33a) could well be urged to fall within the taxable service prior to 01.05.2006 as well, the definition of credit card services in BOFS would be in serious jeopardy on grounds of arbitrariness, ambiguity and failure to identify the taxable event with clarity and precision. Assessees therefore argue that prior to 01.05.2006, credit card services under BOFS must be understood as confined to (credit facility) services provided by an issuing bank to its card holder, as clarified in Board Circular dated 09.07.2001, in the RBI Circular dated 12.12.2003 and the RBI Master circular. Revenue contends to the contra and for reasons advanced for this contention, earlier noticed. Revenue also contends that in construing the scope of credit card services under BOFS, reference to the definition and scope o....
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....; vide Commissioner of Wealth Tax, Gujarat vs. Ellis Bridge Gymkhana (1988) 1 SCC 384; and Commissioner of Customs vs. Acer India (P) Limited (2008) 1 SCC 382. In interpreting a taxing statute, considerations of hardship, injustice or anomalies do not play any useful role, unless there be some real ambiguity vide Mapp vs. Oram (1969) 3 ALL 215 (HL); and State Bank of Travancore vs. CIT (1986) 2 SCC 11. 24. As noticed, Revenue contends that since under the BOFS regime, any service provided or to be provided to a customer, by a banking company etc. in relation to credit card services is the taxable service, services provided by an issuing bank to the acquiring bank and by an acquiring bank to the ME and on which rendition these banks collect interchange fee or ME discount, these services are covered within this taxable service. Revenue argues that since settlement of payments provided by issuing and acquiring banks are services integral to effectuation of transactions concluded through the use of credit card, these services must be considered as provided "in relation to" credit card services. Reliance is placed on Collector of Central Excise, Jaipur vs. Rajasthan State Chemi....
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....has to be rejected and preference given to that construction which avoids such results; however this rule of construction has no application where the words are susceptible to only one meaning and no alternative construction is reasonably open - vide Tirath Singh vs. Bachittar Singh AIR 1955 SC 830; State of Madhya Pradesh vs. Azad Bharat Finance Company AIR 1967 SC 276; Union of India vs. Sankalchand (1977) 4 SCC 193; K. P. Verghese vs. ITO (1981) 4 SCC 173; D. Saibaba vs. Bar Council of India (2004) 5 SCC 583; Modern School vs. Union of India (2004) 5 SCC 583. The House of Lords in Grey vs. Pearson (1957) 6 HLC 61 explained that if the grammatical construction leads to some absurdity or some repugnance or inconsistency, it may be departed from so as to avoid such consequences. The Supreme Court in N.T. Veluswami Thevar vs. G. Raja Nainar AIR 1959)SC 422 cautioned that a construction giving rise to anomalies should be avoided. 26. On the basis of the above broad principles guiding interpretation including of taxing statutes we now proceed to analyse the ambit of credit card services in BOFS, the taxable service in issue. The identification of which of the transactio....
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....xable event in a fiscal legislation. 28. To support acceptance of the principle of construction which states that for avoidance of ambiguity a restrictive construction should be adopted, assessees contend that the guidance provided by Board Circular dated 09.07.2001 must be accepted as a correct and contemporaneous executive exposition of the scope of credit card services and on this basis the inference is compelling that only services provided by issuing bank to the card holder by way of extending credit facility must be considered as falling within the scope of this taxable service. Assessees contend that the legislative intention prior to 01.05.2006 is consistent with the scope of the taxable event under credit card services as spelt out in the Board circular. 29. To justify reference to the definition of card services, to comprehend the true scope of credit card services, assessees state that where an earlier statutory provision is ambiguous i.e., fairly and equally open to diverse meanings, a later provision may in certain circumstances serve as a parliamentary exposition of the former, vide Ram Kishana Ram Nath vs. Janpad Sabha AIR 1962 SC 1073; Jogend....
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....s; supplying the programming and dubbed programming in languages specified by a customer on a video suitable for the channel and capable of broadcasting; delivering programming to the client and like services fall within the ambit of the taxable, advertising agency service. Advertising agency is defined in Section 65(2) of the Act as meaning any commercial concern engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and including advertising. The enumerative provision in Section 65(48) enact that this service is any service provided to a client, by an advertisement agency in relation to advertisement in any manner. Allowing the appeals, Tribunal ruled that appellants do not make or prepare the advertisement; they have neither the expertise nor skill required in this regard; this is done by the advertising agency appointed by the advertisers which remits service tax under the head "Advertising Agency". It requires to be noticed that Revenue contended that since the appellants provide a service in relation to advertisement in some manner, the activities are covered under this taxable service. Negating this contention the Trib....
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....n or marketing or sale of goods produced or provided by or belonging to the client. The High Court of Sikkim allowed the Writ Petition and Union preferred an appeal to the Supreme Court. After the Special Leave Petition was filed, Finance Act, 2008 inserted an explanation in sub-clause (ii) of Section 65 (19). The Explanation stated: For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "service in relation to promotion or marketing of service provided by the client" includes any service provided in relation to promotion or marketing of games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo. One of the contentions urged was that in view of the explanation, which is for removal of doubts, any service provided in relation to promotion or marketing of lotteries falls within the ambit of "promotion or marketing of service provided by the client", in clause (ii) of Section 65(19) of the Act. The Apex Court negated this contention and observed that while Parliament is entitled to create a legal fiction, ....
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.... is by the Act of 1985 exempt or zero rated. The activity of the bank is the supply of financial services, namely the payment of the cheque for the price of the petrol; GST is not payable on the charge (if any) made by the bank for the services. The activity of Databank is the supply of computer services to the bank and to the garage; GST is payable by reference to the charge made by Data bank for its services. The cost of Databank services is passed on to the purchaser (and other customers of the garage) who purchase taxable petrol and are supplied with non-taxable financial services. The supply of petrol by the garage and the supply of computer services by Databank do not attract the exemption afforded to the supply of financial services by the bank. The supply of financial services by the bank does not lose its exemption because the bank's activities take place simultaneously with the other non-exempt activities or because the exempt activity of the bank makes use of the non-exempt activity of Databank for the purpose of completing the non-exempt activity of the garage. The activity of the bank is a separate activity. The activity of Databank is the instrument whereby the ....
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.... to the ME fall within the ambit of this taxable service. 35. Assessees brought to our notice that Union enacted the Credit Information Companies (Regulation) Act, 2005 to provide for regulation of credit information companies and facilitate efficient distribution of credit and for matters connected therewith or incidental thereto. Section 2(d) of this Act defines credit information to mean information relating to the amounts, nature of loans for advances, amounts outstanding under credit card and other credit facilities granted or to be granted, by credit institution to any borrower; nature of security taken or proposed to be taken by a credit institution from any borrower etc. Section 2(f) defines a credit institution to mean banking and other specified companies including those engaged in the business of credit cards and other similar cards and companies dealing with distribution of credit in any other manner. This Act contains provisions for registration, management and audit of credit information companies, specifies the power of RBI to determine the policy in relation to functioning of credit information companies, sets out functions, information privacy principles a....
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...."; and the scope of existing provisions were considered in the light of later provisions, to ascertain the proper construction to be put upon an existing provision and indicated applicable interpretative guidance in such contexts. In Naveen Chemicals, the Court explained that while the phrase "in relation to" is ordinarily of a wide import but in the context of its use in Section 129-C of the Customs Act, 1962 must be read as meaning a direct and proximal relationship to the rate of duty and to the value of goods, for the purpose of assessment. The Bombay High Court in Indian National Shipowners Association reiterated the established principle that while the scope of the phrase "in relation to" is indeed wide, its parameters have to be understood in its context. 38. While services provided by an issuing bank to an acquiring bank and an acquiring bank to the ME are intermediary, ancillary and interdependant integers for effective use of credit cards, we are persuaded to the conclusion that these services though interdependent are distinct and are not intended to be covered within the purview of credit card services prior to 01.05.2006, notwithstanding the phrase "in relatio....
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....iament has specified to be included in card services, incorporated in the definition of card services, for the subsequent period w.e.f. 01.05.2006, in Section 65 (33a). Credit card services is included in card services and stands deleted from BOFS, w.e.f. 01.05.2006. To interpret the several services specifically enumerated in Section 65(33a) and other services like those provided by credit information companies or telephone or internet network providers, which equally contribute to and are essential for effectuation of credit card transactions as also comprehended within BOFS, would lead to perpetual uncertainty and non-temporal inflation of the scope of credit card services in BOFS. Such interpretation must clearly be avoided, is the mandate of established interpretive principles. ANALYSES OF ABN AMRO BANK: 41. After primary analyses of the scope of credit card services in BOFS set out in preceding paragraphs, we analyse ABN Amro Bank. The appeal was preferred against an adjudication order confirming demand for service tax, interest and penalties against the appellant for rendition of credit card services during the period upto 30.04.2006. The facts set out in para 2 ....
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.... statutory provisions relating to BOFS. Paras 11 and 12 advert to the Board circular dated 09.07.2001 and reiterate the statutory provisions. Para 13 extracts provisions pertaining to card services and the relevant analysis is in paras 14 to 17. It was observed in para 14 that credit card services could not said to have been brought within the tax net for the first time w.e.f. 01.05.2006 on enactment of Section 65(33a) and this was taxable even earlier, since 06.07.2001 and there is thus no prospective taxation. Para 15 observes that both Finance Act, 2001 and Finance Act, 2006 had charging provisions authorizing service tax on credit card services; the relation between card issuing bank and acquiring bank was merely made explicit in Section 65(33a), by the Finance Act, 2006 while segregating credit card services from BOFS and bringing it within the fold of card services; that TRU circular dated 28.02.2006 in para 3.19 thereof clarified that major services provided in relation to credit card services are specifically mentioned under the definition; and that this clarification does not state that credit card services became taxable only since the Finance Act, 2006 but was &nbs....
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....e enumerative provision. The judgment fails to consider the resultant ambiguity, uncertainty and indeterminacy regarding the variety of taxable events that could conceivably fall within "services provided in relation to credit card services", on such interpretation and the effect of such irresoluble ambiguity regarding contours of the taxable event. 43. Revenue's defense to the argument on ambiguity may be noticed. Revenue contends that in view of the phrase "in relation to", essential, inter-dependant, incidental and ancillary services which are intermediary in the use of a credit card are all covered under BOFS but there need be no apprehension that the scope of the taxable service is uncertain or perpetually inflationary. Services provided by an acquiring bank to the ME and those provided by an issuing bank to the acquiring bank apart from services provided by an issuing bank to its card holder, were alone proceeded against by Revenue for recovery of tax. It is axiomatic that the scope and interpretation of a provision is not to be ascertained on the sole basis of executive interpretation or initiation of proceedings predicated on executive interpretation. Statutory con....
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....t quite a few, in fact several adjudicating authorities had considered the scope of credit card services as not extending to those provided by banks or financial institutions for which consideration in the nature of interchange fee or ME discount is received/ retained by providing banks. ABN Amro Bank/Royal Bank of Scotland, Standard Chartered Bank, HDFC Bank, HSBC Bank Limited, ICICI Bank, Citibank and American Express Bank had all considered the scope of credit card services as not extending to activities on which interchange fee or ME discount is received. It is inconceivable and would strain limits of logical inference to assume that all these banks consciously misconstrued the ambit of credit card services, with a view to evade tax. For the above reasons as well we are compelled to the interpretation that the scope of services falling within the ambit of credit card services, notwithstanding the phrase "in relation to" in the enumerative provision of the Act during the relevant period, was ambiguous, uncertain and invites purposive, dynamic and strained interpretation. The express enumeration of several services falling within the ambit of card services (including credit....
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....nchoateness in the statutory text. 45. For the aforesaid reasons and analyses, we are of the considered view that paragraph 2.2 of the Board circular dated 09.07.2001 accurately captures the scope of credit card services under BOFS during the period 16.07.2001 to 30.04.2006 i.e. as meaning a service where the customer is provided credit facility for purchase of goods and services; whereby cash advances are also permitted upto specified limits; where for rendition of the service, the service provider collects joining fee, additional card fee, annual fee etc; and all these charges, including interest charges for the service rendered, form part of the value of the taxable service, in BOFS. With respect, we therefore hold that the analyses and conclusions in ABN Amro Bank are incorrect and this ruling is accordingly overruled. 46. Preliminary Objections by Revenue to hearing of the Reference: The Principal Commissioner, Service Tax (Mumbai-I and IV) has filed miscellaneous application No. ST/MA(ORS)/93629/15-Mum seeking adjournment hearing of this reference until final disposal of "this matter" by the Hon'ble Supreme Court of India.....
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....y course of action, in interests of interpretative stability which would operate until an authoritative decision is received from the judgment of Supreme Court. There is also precedential guidance on this aspect. A two Member Bench of this Tribunal disagreed with an earlier decision of a special Bench of this Tribunal and referred the matter to the President for constitution of a Larger Bench of five Members, for reconsideration of the earlier decision of the three Member Bench, while an appeal against the three Member Bench decision was pending before the Supreme Court. The President constituted a five Member Bench and this was challenged before the Delhi High Court. In Paras Laminates (Pvt.) Ltd., vs. CEGAT 1990 (45) ELT 521 (Dli); the Delhi High Court quashed the order of the President referring the case to a five Member Bench and inter-alia observed: Judicial propriety demanded that before the constitution of the Larger Bench, the President should have waited for the decision of the Supreme Court which would have been binding on all the Courts. The order of the special Bench and the order of the President referring the case to the Larger Bench were quashed ....