TaxTMI 
TaxTMI 
2021 (12) TMI 483
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....onerate Chennai, under the category "Banking and other financial services, business auxiliary services, charge card and other card payment services, manpower recruitment or supply services, among other services". An internal audit of group of the Service Tax Commissionerate, Chennai found that it was receiving interchange fee, which formed part of the gross amount billed to the customer. Show Cause Notices were issued to the Respondent, calling upon it to show why it should not be visited with service tax on the interchange fee, besides penalty and interest. The notices covered periods prior to 01.07.2012 and also thereafter. The Respondent filed its explanation to which we shall refer to hereinafter. In short, its case is that the Respondent is not performing any service so as to render it exigible to service tax on the interchange service. The interchange fee is in the nature of interest it has earned in the credit card transaction with the customer. It is also contended that, in fact, the interchange fee has already been subjected to service tax in the hands of the acquiring bank. Therefore, it was pointed out that if the Respondent is again visited with service tax, it would be....
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.... present case, as credit card services continued as part of banking and financial services. THE NEW REGIME USHERED IN BY VIRTUE OF THE INTRODUCTION OF SECTION 65(33A)OF THE FINANCE ACT, 2006. 10. By virtue of the Finance Act, 2006, credit card service was omitted from the definition of Section 65(12), which was the provision which defined banking and other financial services. With effect from 01.05.2006, Section 65(33a) came to be inserted and it reads as follows: "65(33a) "credit card, debit card, charge card or other payment card service" includes any service provided,- (i) by a banking company, financial institution including non-banking financial company or any other person (hereinafter referred to as the issuing bank), issuing such card to a card holder; (ii) by any person to an issuing bank in relation to such card business, including receipt and processing of application, 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; (iii) ....
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....z), (zzzza), (zzzzb), (zzzzc), (zzzzd), (zzzze), (zzzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzj), (zzzzk), (zzzzl), (zzzzm), (zzzzn), (zzzzo), (zzzzp), (zzzzq) (zzzzr) (zzzzs) (zzzzt) (zzzzu) (zzzzv) and (zzzzw) of clause (105) of section 65 and collected in such manner as may be prescribed." Provided that the provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint." 13. With effect from 01.07.2012, Section 66B was inserted as the charging section and it reads as follows: "66B. Charge of service tax on and after Finance Act, 2012.- There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed." Service has been defined in Section 65B(44). The Negative list is contained in Section 66D. 14. I have referred to these provisions as the impugned order covers periods embraced by Section 66 and 66B. 15. The next provision to ....
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....able for paying the Service Tax in relation to such service. "Provided that the Central Government may notify the service and the extent of Service Tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the Service Tax shall be paid by the service provider." 17. Section 69 deals with registration. It reads as follows: "69. Registration. - (1) Every person liable to pay the service tax under this Chapter or the rules made thereunder shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise. (2) The Central Government may, by notification in the Official Gazette, specify such other person or class of persons, who shall make an application for registration within such time and in such manner and in such form as may be prescribed." 18. The relevant Rule in the Service Tax Rules 1994 is Rule 4. 19. Section 70 deals with furnishing of return and it reads as follows: "70. Furnishing of returns. - (1) Every person liable to pay the service tax sh....
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....able claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force." THE DECISION OF THE TRIBUNAL IN STANDARD CHARTERED BANK AND ORS. V. CST, MUMBAI-I AND OTHERS 2015 [40] S.T.R. 104 (Tri. - Del). 22. The said decision is reported in 2015 [40] S.T.R. 104 (Tri. - Del). A larger Bench of the Tribunal (three Members) went on to consider whether the new definition of the credit card services under Section 65(33a) read with Section 65(105)(zzzw), was substantive or it was a continuation of the levy under Section 65(10) or Section 65(12). It also considered the question, whether provisions under Section 65(33a) would apply retrospectively from 16.07.2001. 23. I notice the following views expressed by the Tribunal: "27. On a literal construction of the relevant provisions it appears at first blush that any service provided to a customer by a banking company etc. in relation to credit card services, is a taxable service. Acceptance of this construction would lead to infinite expansion of the taxable event. No....
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....s it is clear that 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 car....
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.... excised ambiguity, uncertainty and inchoateness in the statutory text." (Emphasis supplied) 24. I may notice the conclusion as set out: "47. CONCLUSIONS: We answer the reference dated 16.08.2013 as under: (a) On point No. (i) in the order of reference, we hold that introduction of a comprehensive definition of "credit card, debit card, charge card or other payment service" in Section 65(33a) read with Section 65(105)(zzzw), by the Finance Act, 2006 is a substantive legislative exertion which enacts levy on the several transactions enumerated in sub-clauses (i) to (vii) specified in the definition set out in Section 65(33a); and all these transactions are neither impliedly covered nor inherently subsumed within the purview of credit card services defined in Section 65(10) or (12) as part of the BOFS; (b) On point No. (ii) we hold that subclause (iii) in Section 65(33a) is neither intended nor expressed to have a retroactive reach i.e. w.e.f. 16.07.2001. Services enumerated in these sub-clauses are not implicit in the scope of credit card services; (c) On point No. (iii) of the reference, we hold that a Merchant/Merchant Establishme....
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.... cause notice dated 19.09.2011. The matter was adjudicated and the demand of service tax was confirmed against the appellant alongwith interest and various penalties were imposed. Against the said order, the appellant is before this Tribunal. xxx xxx xxx 6. It is a fact on record that the acquiring bank is discharging his service tax liability on the amount in question, in that circumstances, no service tax is payable by the appellant (and the said fact has not been disputed by the learned AR during the course arguments) as held by the Hon'ble Allahabad High Court in the case of Commissioner of C. Ex. Lucknow vs. Chotey Lal Radhey Shyam reported at MANU/UP/3815/2017 : 2018 (8) G.S.T.L. 225 (All.). xxx xxx xxx 8. On going through the said definition, we find that if the appellant is receiving certain commission in relation to settlement of any amount, then and only then the said activity is covered under credit card services. Admittedly, the appellant is not engaged in any activity of settlement of the amount. In fact, the appellant is not the settlement agency and is acting only as issuing bank. It is admitted position by the learned Commissioner in the ....
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.... acquiring banks in various merchant/service establishments: that the acquiring banks make payments to the merchant establishments/service establishments and charge them a precontracted rate known as Merchant Discount Rate (MDR) to facilitate the credit card transaction; that acquiring banks submit the transactions settled by Merchant establishments to the assessee (Issuing Bank) through Card Association and in-turn the assessee makes payments to the acquiring banks through Card Association; that Card Association (Master Card, Visa and Diners Club International) acts as a bridge between the assessee (issuing bank) and acquiring banks; that Card Association provides the required network and platform to the issuing banks and acquiring banks for facilitating the cards transactions; that normally acquiring bank submits the transactions (settled by merchants) to the Card Association in a standard file format for onward submission to the assessee (issuing bank); that the standard file format contains details like card number, acquirer reference number, transaction amount, interchange fee, date of transaction, nature of merchant business etc, that based on the transaction details received....
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....ettled by the acquiring bank and the discount (interchange fee) so earned is shared with the assessee(card issuing bank). It therefore, appears that the assessee have earned service income namely interchange fee in relation to credit card services and the interchange fee earned by the assessee appears to be taxable under Section 65 (105) (zzzw) of the Finance Act, 1994 read with Section 65(33a) ibid; The fact of payment of service tax on the interchange fee by the acquiring bank does not exempt the assessee from payment of service tax on the consideration received by them towards rendering of service as each person providing service is liable to pay service tax for the services rendered by them." 28. I notice that in the second of the SCN dated 23.09.2014 also, which was, in fact, issued in continuation to the first SCN dated 23.04.2013, and issued, proceeding on the basis that the respondent was still receiving interchange fee from the acquiring bank, which was not being subjected to service tax and paragraph 5 of the such Show Cause Notice repeats what has been stated in paragraph 5 of the first Show Cause Notice. THE CONTENTIONS NOTICED BY THE COMMISSIONER 29. The inter....
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.... service tax. Board Circular No. 65/14/2003 dated 05.01.2003 was relied upon. The consideration for the provision of credit card services is recovered by the acquiring bank from the merchant establishment and the portion of the same is in respect of service provided by the assessee. 30. Therefore, the gross amount charged for the credit card services is the merchant discount which will form the basis for the levy of service tax in terms of Section 67. All activities are undertaken by the participants to support a transaction where a merchant establishment is able to accept a payment from a credit card holder through the modality of credit cards. The gross value of the service rendered, having suffered service tax, the Show Cause Notices were impugned. There is reference to case law in support of the same. Only the value which has a nexus with the services rendered was liable to subject to service tax. Any attempt to levy service tax would amount to double taxation. There is no escapement of tax. There would be duality of same tax. Transaction in money (relatable to the Show Cause Notices for the period after the negative list was introduced) is not liable to service tax was the ....
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....the Card Association and is verified and retransmitted thereupon on approval the cardholder is enabled to make the purchase, the Merchant establishment furnishes the statement of purchases through such cards to the acquiring bank, who files the statement with the Card association; the card association debits the issuing bank the amount due to the acquiring bank less the interchange fee which accrues to the issuing bank for verifying and permitting the transactions. The acquiring bank releases the amount to the Merchant Establishment after deducting the MDR as agreed upon by them. The role of the Card associations in these transactions is vital and a11 the key players, the issuing bank, the acquiring bank and the Merchant establishment are in contractual agreement with the card associations. Apart from the contractual agreement with the card Associations, the issuing bank is in contractual agreement with the card holder for allowing the various credit limits for purchase of goods or services and return of the credit extended in due course at the appropriate rates of interest. Similarly, in certain cases the acquiring banks are in contractual agreements with the merchant establishmen....
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....der. In view of the above, I find that the interchange fee is a consideration received as are suit of contractual agreements with the card associations to facilitate purchase of goods or services. Therefore, I find that the argument that there is no service or service receiver provider relationship is not available or the fee is not a consideration as it is not negotiated upon do not hold merits. As per Section 67 of the Act, the gross value of the service is the amount received for provision of service. It is nowhere stipulated in law that the consideration must be negotiable. However, issuing bank while entering into agreement with the Card association agrees to abide by the rates and charges and therefore the argument that the consideration is not negotiated is not factual as by agreeing to the rates, they are negotiated. The definition of credit card services as it existed upto 30.06.2012, clearly states that the services provided the card associations to the issuing bank is a taxable service and effective from 01.07.2012, activity provided by one person to another for a consideration is a service." 33. As regards the case of the respondent that service tax is paid by the ac....
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....8. There is no discussion, it was found, or counter response that Standard Chartered Bank (supra) is not applicable. The question of interchange fee was not involved in Standard Chartered Bank (supra). The Tribunal agreed with the contention of the Respondent that it was not the submission of the assessee in Standard Chartered Bank (supra) that interchange fee was not consideration for service and the Tribunal and, therefore, did not have any occasion to examine, whether or not, the activity of issuing bank was service and covered by the taxing entry for credit card services. The Tribunal went on to, on the other hand, derive support from the Judgment in ABM Amro (supra) after adverting to paragraphs- 6 to 8, finding that the issue has been conclusively decided by the Tribunal in ABM Amro (supra) against the Revenue. The said Order was followed and the Order of the Commissioner was set aside. THE CONTENTIONS OF THE PARTIES 39. Shri Balbir Singh, learned Solicitor General, would, after adverting to the salient features of the credit card transaction, contend that the respondent, as issuing bank, is liable to pay tax on the interchange fee. He drew our attention to the definiti....
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....ed tax, is that, interchange fee is paid prior to the receipt of MDR. In other words, the deduction of MDR is done at the time of settling the money to the merchant establishment. This happens only after receiving the amount from the issuing bank, which is net of interchange fee. The interchange fee is the consideration given to the issuing bank for validating the e-transaction, whereas MDR is the consideration for the acquiring bank for settling the merchant establishment. MDR is fixed as the percentage of sale cost or service cost, whereas interchange fee is fixed by the Card Association, taking into account other aspects the cost of moving money, the time value of money in terms of current interest rates and the relative risks involved, etc.. They are two independent transactions. There are also two separate services forming part of credit card service. No service tax has been paid by the respondent on the amount received as interchange service towards rendering taxable service. The fact of payment of service tax by acquiring bank does not absolve the issuing bank from payment of tax on the consideration received by it. There is no double taxation. It is also contended that with....
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....ustries Ltd. (2007) 8 SCC 89 / [2007] 215 ELT 489 (SC). The nature of the credit card transaction is highlighted. It is pointed out that the acquiring banks incur expenditure on installing swiping machines at the different merchant establishments. They are also responsible for ensuring payment to the service recipient within two days of transaction (T+2) as per the mandate of the Reserve Bank of India. Regarding the role of the issuing bank, it is stated that when the credit card is swiped by the card holder, on approval of the transaction, the entire chain of activities, is triggered. In the Table given, which consists of a transaction worth Rs. 100/-, the card network debits the account of the respondent to the extent of Rs. 98/-. This amount is remitted to the acquiring bank. Rs. 2/- remains to the credit of the issuing bank and this sum is called interchange fee. This is the income of the issuing bank. The acquiring bank receives Rs. 98/-. It remits Rs. 94.30 to the merchant establishment. The acquiring bank retains its service consideration of Rs. 3/-. At the rate of 14 per cent, 70 paise is payable as service tax on the total MDR of Rs. 5/-. It is the case of the respondent t....
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....represented about the practice of paying tax by the acquiring bank on the gross amount of MDR. It is further contended that the absurdity of the suggestion of the Department, can be illustrated with an example where a Bank is both the issuing bank and the acquiring bank. It earns a gross MDR of Rs. 5/-. It pays service tax on Rs. 5/-. If the bank is again asked to pay separately on Rs. 2/-, there would clearly be double taxation. The Department could have easily cross-checked by way of a sample check. Service tax is a passthrough levy. In other words, it can be used as an input tax credit for payment of output tax by the recipient. The credit card service is an input service as far as merchant establishments are concerned. If the service tax on interchange fee is demanded once again, there is no mechanism to take the service tax credit, even though, it has to be treated as a service provided by the issuing bank. No specific invoice is issued by the issuing bank either on the acquiring bank or on the merchant establishment, since the issuing bank does not know the identity of the merchant establishment or the acquiring bank. Neither the Act nor the Rules contemplate multiple payment....
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....nt for goods or services and protection from fraud. In modern credit card transactions, following five parties are involved, namely: i. Issuing Bank - The Issuing Bank issues credit cards and therefore, effectively lends monies to its Card Holders. The contractual relationship between an Issuing Bank and its Card Holders is spelt out in the cardholder agreement / terms & conditions. Service fees recovered by the Issuing Bank from Card Holders for such service is charged to service tax. ii. Credit Card Holders - The Card Holder is the customer to whom the Issuing Bank issues a credit card. The credit card evidences a potential line of credit established by the Issuing Bank using which the Card Holder may purchase goods or services at any Merchant Establishment. iii. Acquiring Bank - The Acquiring Bank is a bank which recruits, screens, and accepts Merchant Establishments into a Card Network's network. They provide Point of Sale ('POS') machines to Merchant Establishments which enable Merchant Establishments to validate and accept credit card payments. The Acquiring Bank processes credit card transactions for Merchant Establishments within the r....
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....ng Bank to the Merchant Establishment is charged to service tax, (iii) services provided by the Card Network to the Acquiring Bank is charged to service tax, and (iv) services provided by the Card Network to the Issuing Bank is charged to tax. 17. The payment by Merchant Establishments to the Acquiring Bank (point (ii) above), known as Merchant Discount Fee includes a portion (known as Interchange Fees) that is shared by the Acquiring Bank with the Issuing Bank. It is the case of the Appellant -Department that the Issuing Bank receives Interchange Fees for services rendered to the Card Network, which has not suffered tax." 44. In the reply of respondent to SCN 97/15, it is, inter alia, stated: You may notice that in the reply to the Show Cause Notice No. 97 dated 11.08.2015, which relates to the period April, 2014 to March, 2015, after Section 66B of the Act came into force. "1.2 The Noticee provides various financial services including the Credit Card Services. In these credit card transactions, the Noticee issuing credit cards to customers is known as 'Issuing Bank'. Transactions involving purchase of goods and services are undertak....
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....t of Service tax by the Noticee under the reverse charge mechanism is attached hereto and marked as Exhibit C. (viii) The Merchant Discount which is the gross amount received from the Merchant Establishment is subjected to Service tax as per Section 65B (44) of the Finance Act, 1994 ('the Act'), in the hands of the Acquiring Bank." THE PERIOD PRIOR TO 01.07.2012; SECTION 66(33a) DECODED 45. Section 65(33a) was inserted by Finance Act, 2006 w.e.f. 01.05.2006. As already noticed, credit card services made its first appearance as part of banking and financial services under Section 65(10). Thereafter, it became part of Section 65(12), when it became part of the definition of the words "banking and other financial services" and it is finally, w.e.f. 01.05.2006, that Section 65(33a) made its debut. Section 65(33a) uses the word "includes any service provided under clauses (i) to (vii)". I must not be oblivious to the fact that quite apart from credit card, debit card and other payment card service, are also within the scope of Section 65(33a). It is apparent that Section 65(33a)(i) deals with the service provided by a banking company, financial institution, including n....
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.... the different limbs of Section 65(33a), would assume meaning. 49. In the Explanation to Section 65(33a)(iii), in the context of the definition of the word "acquiring bank" for the purpose of clause (iii) of Section 65(33a), the acquiring bank is to be understood as the enumerated entities or any other person, who makes the payment to any person, who accepts such card. It is clear that in consonance with the very case of the respondent, that the expression "any person who accepts such card", would be the merchant. 50. Analysing Clause (iii) further, I notice that the Legislature has included both issuing bank and an acquiring bank. In other words, the word used in between issuing bank and an acquiring bank is not "or". In other words, Section 65(33a) contemplates service provided by any person including an issuing bank and an acquiring bank. It is service to any other person. 51. This means the service cannot be one rendered by an issuing bank to an acquiring bank. It must be service rendered by an issuing bank and an acquiring bank to any other person in relation to settlement of any amount transacted through such card. IS THERE ANY SERVICE PROVIDED BY THE RESPONDENT A....
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....s that allegedly, 70 paisa is purportedly paid as service tax on the gross consideration of Rs. 5. It is clear that under the Explanation to Section 65(33a)(iii) of the Act, the acquiring bank is treated as the bank which makes the payment to the person who accepts such card, which I have already found to be the merchant establishment. The Legislature has contemplated that apart from an acquiring bank, any other person including an issuing bank, may render service in relation to the settlement of the amount transacted through such credit card. 54. It is clear that interchange fee is earned by the respondent as issuing bank. It may be true that the respondent may also be engaged in the credit card transaction both in its capacity as issuing bank and an acquiring bank. In such an event, the aggregate sum earned for the service rendered in its capacity as issuing bank and its capacity as acquiring bank, would become the measure of tax or, in other words, value of the taxable service but legally they are for separate services as the nature of service rendered by the issuing bank is different from the service rendered by the acquiring bank. The fee is also different. Undoubtedly, it ....
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..... 100/-, gets debited from the account, which the respondent bank, as issuing bank, maintained. It is the funds of the issuing bank, which is utilised, in other words, to effect the payment. It is, therefore, clear that there is service rendered by the bank, which is in connection with Clause (iii) of Section 65(33a). It is another matter that under the agreement between the issuing bank and the cardholder, the cardholder would be paying the sum of Rs. 100/- to the issuing bank, within the stipulated period and, if he does not pay, he would incur the liability to pay interest, as stipulated, under the terms of the contract. The fact remains that there is the risk undertaken, in the first instance, of making available the funds to satisfy and settle the amount transacted through the card to the merchant establishment. SECTIONS 67 TO 70; WHO IS LIABLE TO PAY SERVICE TAX, OBTAINED REGULATION AND FILE RETURN? 58. As far as the value of the taxable service is concerned, this is a matter which is governed by Section 67 of the Act. Since Section 66 imposed service tax on the value of the taxable service, Section 67 provides for how the value of the taxable service is to be determine....
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....ions of rules is premised upon the liability to get registered being on the person made liable to pay service tax. No doubt, endorsement of an existing registration may be possible. Section 70 also cast the liability on the person liable to pay service tax, to assess the tax due and furnish return. 60. The charge of service tax under section 66 was on the value of taxable services as enumerated in Section 65(105). The measure of the tax is found located in Section 67. The person liable to pay the tax is governed by Section 68 and such person who is liable to pay service tax under Section 68 is also liable to get himself registered under Section 69 read with the Rules and such person that is the person liable to pay service tax must also assess the tax and file Return under Section 70, as prescribed in the Rules. 61. I have already explained the scope of Sections 67 to 70. The contention of the Respondent, however, in regard to Section 67(1)(i), in its written submission before this Court, is that the expression "service provider" will include both issuing bank and the acquiring bank and the gross amount will be Rs. 5/-, which includes the consideration of Rs. 2/- payable to t....
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.... the Card Association, with which, both the issuing bank and acquiring bank, have entered into separate agreements. The activity of the acquiring bank, and, therefore, the services rendered by the acquiring bank is distinct from the activity of the respondent bank and, therefore, the service is different and distinct. 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. The interchange fee, in a transaction of Rs. 100/-, is the amount of Rs. 2/-, which remains to the credit of the respondent-issuing bank, when it suffe....
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....from the leaves of foreign Judgment and apply it out of context. 66. The respondent is a Banking Institution. Undoubtedly, it falls to be regulated under the Banking Regulation Act. It is, in fact, a scheduled bank. Interestingly, the Interest Tax Act, 1978, provides for a charge in Section 4 on interest earned by a credit institution, which includes the respondent-bank. Undoubtedly, under Section 18, the tax paid on interest under the Interest Tax Act can be deducted under the Income-Tax Act. If the interchange fee, has been regarded as interest, then, undoubtedly, it would have been brought to tax under the Interest Tax Act. The respondent has no case that tax has been paid on the interchange fee treating it as interest. 67. While on the question of interest, I may notice the discussion of this Court on the concept of interest in the Judgment in Ferro Alloys Corpn. Ltd. v. A.P. State Electricity Board and anothe r1993 Supp (4) SCC 136: "129. Strictly speaking, the word "interest" would apply only to two cases where there is a relationship of debtor and creditor. A lender of money who allows the borrower to use certain funds deprives himself of the use of those fund....
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....must first understand the concept of interest. It has been repeatedly held that interest is basically compensation for the use or retention of money. In Halsbury's Laws of England, 4th Edn., Vol. 32, "interest" has been defined as follows: "127. Interest in general. -Interest is the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another. Interest accrues from day to day even if payable only at intervals, and is, therefore, apportionable in respect of time between persons entitled in succession to the principal." 30. According to Law Lexicon, by P. Ramanathan Aiyar, 3rd Edn. (2005) (p. 2402) Vol. 2: " "INTEREST" means the time value of the funds or money involved, which, unless otherwise agreed, is calculated at the rate and on the basis customarily accepted by the banking community for the funds of money involved." 31. In Words and Phrases Permanent Edition, Vol. 22 p. 148, "interest" means: "(i) "Interest" is compensation for loss of use of principal. Jersey City v. Zink [Jersey City v. Zink, 44 A 2d 825 : 133 NJ Law 437 (1945)] , A 2d p. 828". (ii) "Interest" means c....
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....s a declared service, but shall not include - (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale withing the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force." The Explanation 2 originally read as follows; "Explanation 2.- For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged." The same came to be substituted in 2015 by the following: - "Explanation 2.- For the purposes of this clause, the expression 'transaction in money or actionable c....
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....xclusionary part of the definition is embedded in Explanation2. This Explanation carves out an exception to the exclusionary part of the definition by providing that any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged shall not be considered as a transaction in money." xxx xxx xxx 73. The interchange fee is earned by the issuing bank as consideration for service which is provided by the issuing bank. The complex web of activities indulged in by the three main players namely the issuing bank, the card association and the acquiring bank culminates in the settling of the amount due to the merchant establishment which stood persuaded to make available goods and services initially on credit but on assurance that the credit card transaction will be taken to its logical culmination. It is clear that the active role which necessarily means the activity indulged in by the issuing bank is indispensable and at the heart of the transaction in the system under which though through machines available by the acquiring bank with....
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....tained in the Notification. This Court, proceeded to consider the case on merits and found that the goods in question were covered by the exemption Notification. It is thereafter that what has been stated in paragraph-9, was found to be reason to supplement the decision to uphold the impugned Order. 79. In Birla Corpn. Ltd. v. Commissioner of Centra Excise (2005) 6 SCC 95, the Court noted the submission of the appellant that in several decisions followed, the views of the Tribunal in two cases, referred to therein, and the law was fully settled. We notice the following paragraph: "5. In the instant case the same question arises for consideration and the facts are almost identical. We cannot permit the Revenue to take a different stand in this case. The earlier appeal involving identical issue was not pressed and was therefore, dismissed. The respondent having taken a conscious decision to accept the principles laid down in Pepsico India Holdings Ltd. [(2001) 130 ELT 193 : (2001) 42 RLT 800 (cegat)] cannot be permitted to take the opposite stand in this case. If we were to permit them to do so, the law will be in a state of confusion and will place the authorities as wel....
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....ditional Solicitor General that no Appeal was preferred because there was issue of limitation/delay in the ABN Amro (supra) case and this is stated to be incorrect. It is stated that Appeal was filed within time. In the Appeal, one of the grounds taken is the premise on which ABN Amro (supra) was decided was different from the case of the appellant. It was also pointed out that the premise in the said case was that the fact of the acquiring bank paying service tax was not disputed by the Department. I would think that, in the circumstances of the case, I cannot reject the Appeals only on the ground that no Appeal was carried against ABN Amro (supra). DEVIATION FROM SHOW CAUSE NOTICE [NUMBER ONE]; 84. One of the contentions raised by the respondent is that in the Show Cause Notices issued by the Commissioner he proceeded on the basis of rejection of the version of the respondent that no service was being performed by the respondent bank as issuing bank towards the acquiring bank. However, it is pointed out that there is a deviation in the order and what is found is service is being performed by the issuing bank in terms of the agreement with the card association. A perusal of ....
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.... charged on manufactured goods. Just as Central Excise duty cannot be charged twice on the same goods under two separate chapters/ headings/sub-headings of the Central Excise Tariff, so also Service tax cannot be charged twice on the same service (transactions). However, one service provider may provide more than one taxable service. In such cases, the service provider need only take one registration, but it shall be endorsed for all the taxable services and tax liability will have to be discharged for each of the taxable services separately." 87. The above Circular contemplates that if the one service provider provides more than one taxable service, one registration is sufficient but is to be endorsed for all the taxable services. Further, tax liability will have to be discharged for each of the taxable services separately. In the context of the credit card transaction, as issuing bank for the card holder, the respondent is providing taxable service to the card holder. That apart, if, under Section 65 (33a) of the Act, the respondent has been engaging in other services till 01.07.2012 and, thereafter, has been providing different services, it would have to discharge its tax lia....
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....ame period and in the same territory. To constitute double taxation, the two or more taxes must have been (1) levied on the same property or subject matter, (2) by the same government or authority, (3) during the same taxing period, and (4) for the same purpose. "There is no double taxation, strictly speaking" says Cooley, "where (a) the taxes are imposed by different States, (b) one of the impositions is not a tax, (c) one tax is against property and the other is not a property tax, or (d) the double taxation is indirect rather than direct." 91. In Union of India (UOI) and others v. Tata Iron and Steel Company Limited, Jamshedpur (1976) 2 SCC 123, the assessee used duty paid ingot moulds and bottom stools, when they became unfit and remelt it with admixture with other non-duty paid scraps and hot metal in the manufacture of steel ingots. The claim of the assessee for exemption in terms of Notification, was rejected. The High Court granted relief. This Court held as follows: "23. The High Court rightly held that the contention of the Revenue fails on two broad grounds. First, there cannot be double taxation on the same article. Counsel for the Revenue gave the ....
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....ich I am in agreement with the learned Additional Solicitor General. However, I am unable to agree with the learned Additional Solicitor General that even if the acquiring bank has discharged the liability qua the interchange fee also, treating it as part of MDR, then, the respondent is liable to pay tax. 93. I am conscious that the argument of the appellant involves the following reasoning. In law the respondent being found liable to pay tax on the interchange fee and, as admittedly, the tax has not been paid by it, it is not the lookout of the Department to consider, whether the payment of the tax by the acquiring bank, was effected, even assuming, it was on an amount including the interchange fee. But this involves, in effect, double taxation. SHOW CAUSE NOTICE: DIVERGENCE FROM THE ORDER OF THE COMMISSIONER [NUMBER TWO]; 94. Another aspect pointed out by the respondent is that in the Show Cause Notice, the Commissioner has proceeded on the basis that payment by the acquiring bank of service tax on the interchange fee, will not exonerate the liability of the respondent to pay the service tax. It is pointed out thereafter to go on to find that the respondent has not produ....
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.... is, inter alia, stated as follows: "74. The Impugned Order finds that the Appellant has not furnished any information in support of their claim of Service Tax being already paid on the interchange Fees by the Acquiring Bank on the Merchant Discount. IN this regard, the Appellant craves leave to refer to and rely on the relevant documents if and when produced. However, the Appellant contends that it requires to be appreciated that the Appellant does not have any privity of contact with the Acquiring Bank, and procuring the said documents will be challenging. While the Tax Department has the ability to obtain this information directly from the Acquiring Bank. The Tax Department has however not sought it or produced anyinfo4rmation / document or even alleged that the Acquiring Bank is not paying service tax on the Merchant Discount. The Impugned Order, in failing to appreciate this aspect has put the Appellant to hardship, resulted in double taxation, and also is contrary to the settled legal principles as also in the teeth of the cited decisions and is thus, erroneous and unsustainable, and therefore liable to be set aside." 97. I may also further notice that in the Orde....
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....ri materia with the corresponding provisions in Section 73 of the Act. Suppression is found in both statutes as a ground to extend the period. In the aforesaid judgment of this Court has held that the period begins with knowledge by the department. 102. While on suppression, I may notice the judgment of this Court again rendered under Section 11A of Central Excise Act and reported in Bajaj Auto Ltd., Waluj, Aurangabad (supra). In the said case, I need to notice the following paragraphs: "15. Section 11-A of the Act empowers the Central Excise Officer to initiate proceedings where duty has not been levied or short-levied within six months from the relevant date. But the proviso to Section 11-A(1) provides an extended period of limitation provided the duty is not levied or paid or which has been short-levied or short-paid or erroneously refunded, if there is fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty. The extended period so provided is of five years instead of six months. Since the proviso extends the period of limitation fro....
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....re can be a suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11-A. Misstatement or suppression of fact must be wilful." (Emphasis supplied) 18. In Anand Nishikawa Co. Ltd. v. CCE [(2005) 7 SCC 749] this Court has observed: (SCC p. 759, para 27) "27. ... we find that 'suppression of facts' can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done and not that he must have done, would not render it suppression. It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find wilful suppression." (Emphasis supplied) "19. In our view, on a reading of the relevant provision the extended period of limitation as provided by the proviso to Section 11-A(1) of the Act can only be invoked when there is a conscious act of either fraud, collusion, wilful misstatement, suppression of fact, or contravention of the provisions of the Act or an....
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....s the respondent has also a case that it was not provided with an opportunity to prove that the acquiring bank had discharged the tax` liability on the interchange fee also, an opportunity should be granted to the respondent to establish the same. I have also found that the Tribunal has not returned a finding as regards the question whether there was wilful suppression by the respondent in regard to part of the period covered by Notice dated 24.04.2013. I would think that this is a matter which calls for finding by the Tribunal. 109. Therefore, the upshot of the above discussion is as follows: I. I find that the respondent, as issuing bank, was providing service, as found by the Commissioner; II. For the period prior to 01.07.2012, the service of the respondent, as issuing bank, squarely fell within Section 65(33a)(iii) of the Act; III. I reject the contention of the respondent that interchange fee is to be treated as interest and, therefore, not taxable under the Act; IV. I hold that the case based on the credit card transaction, being a transaction in money and, therefore, excluded from the definition of "service" in Section 65B(44), is unac....
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....on the interchange fee also, then, the respondent should not be visited with interest and penalty. Should it be otherwise, demand for interest and penalty will stand. 111. Resultantly, on the basis of the aforesaid findings, I allow the Appeals and remand the matter back to the Tribunal for considering: a. Whether the finding of the Commissioner, which was challenged by the respondent, that there was suppression, in relation to the period covered by the Show Cause Notice dated 24.04.2013, was justified or not? In case it was found that it was not justified, it is for the Tribunal to pass appropriate Orders; b. The Tribunal will provide an opportunity to the respondent to produce material to show that the acquiring bank had discharged the liability of the respondent as issuing bank with regard to the interchange fee for the period covered by the Show Cause Notices. Toward this end, I make it clear that the Tribunal will be free to permit the respondent to produce the material before the Commissioner and to call for a finding from the Commissioner; c. It will be open to the Tribunal to call upon the appellant to call for the records from the acquiring ba....
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....empt from service tax. Since then, this list has been modified each year. 4. Section 65 ­ as it stood originally, contained an almost exhaustive list of definitions, meant to delineate activities that were to be subjected to service tax levy. Each of these definitions were, in turn, also specifically marked as a "taxable service" under various sub­clauses of Section 65 (105). Service tax was made applicable on "banking and other financial services" (hereafter 'BOFS') from 16 July 2001. The relevant portions of the definition of BOFS - by Section 65 (10) as it originally stood, is reproduced below: "banking and financial services" means the following services provided by a banking company or a financial institution including a non­banking financial company, namely:­ ... (ii) credit card services; ****** *****" By Finance Act, 2003 a wide range of activities were covered under the definition of BOFS in Section 65(12) ­ which, when enacted, read as follows: "(12) "banking and other financial services" means (a) the following services provided by a banking company or a financial institution including a non­ba....
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....ing such card to a card holder; (ii) by any person to an issuing bank in relation to such card business, including receipt and processing of application, 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; (iii) 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 sub­clause, "acquiring bank" means any banking company, financial institution including nonbanking financial company or any other person, who makes the payment to any person who accepts such card; (iv) in relation to joint promotional cards or affinity cards or co­branded cards; (v) in relation to promotion and marketing of goods and services through such card; (vi) by a person, to an issuing bank or the holder of such card, for making use of automated teller machines of such person; and (vii) by the owner of tr....
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.... (vii) an association of persons or body of individuals, whether in corporated or not, (viii) Government, (ix) a local authority, or (x) every artificial juridical person, not falling within any of the preceding sub­ clauses;" "Declared services" are defined under Section 65B (22) to mean "any activity carried out by a person for another person for consideration and declared as such under Section 66E". A service, therefore, to fall within the category of "declared services", has to satisfy two basic conditions conjunctively: a. it must be an activity by one person to another for consideration b. it must be specified (i.e. declared) under Sec. 66E 7. Long ago, in Govind Saran Ganga Saran v. Commissioner of Sales Tax 1985 Supp SCC 205, this court held that the taxing statute identifies the subject of levy, or the taxing event; it then indicates the person on whom the levy is imposed ­ and who has to pay the tax; the third is the rate of the impost; and the last, is "the measure or value to which the rate will be applied for computing the tax liability." Similarly, in Commissioner of Income Tax v B.C. Srinivasa Setty (1981) 2 SCC....
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....ce which is inbuilt into the concept of service tax under the Finance Act, 1994." The principle that the levy, under the Finance Act, is an indirect tax, is brought home by Section 83 "SECTION 83. Application of certain provisions of Act 1 of 1944.- The provisions of the following sections of the Central Excise Act, 1944, as in force from time to time, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise :­ sub­section (2A) of section 5A, sub­section(2) of section 9A, 9AA, 9B, 9C, 9D, 9E, 11B, 11BB, 11C, 12, 12A, 12B, 12C, 12D, 12E, 14, 15, 15A, 15B, 31, 32, 32A to 32P, 33A, 35EE, 34A, 35F, 35FF, to 35O (both inclusive), 35Q, 35R, 36, 36A, 36B, 37A, 37B, 37C, 37D, 38A and 40." which make certain provisions of the Central Excise Act applicable to the Finance Act, 1994. Section 12B of the latter Act, raises a presumption that the duty has been passed on to the buyer of goods (in this case, the customer or service recipient). "SECTION 12B. Presumption that the incidence of duty has been passed on to the buyer. - Every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved....
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....any taxable service with reference to its value shall,­ (i) in a case where the provision of service is for a consideration inmoney, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration notwholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub­sections (1), (2) and (3), the value shall be deter....
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.... the "value of the taxable service referred....and collected in such manner as may be prescribed". Clearly, the levy is on the value of taxable service, and, more pointedly, the rate of tax is to be collected in such manner as may be prescribed. For the purposes of the present case, the value of the taxable service is the one enumerated in Section 65 (105) (zzzw). Description of the credit card transaction 10. The history of the legislation, the position in law, both before and after the 2006 amendments, have all been elaboratelyand, accurately, discussed by Justice Joseph. I concur with the factual narration. For the sake of completeness of this separate judgment, however, I would - under pain of charge of repetition, describe the underlying transaction. The characters, for a credit card transaction are set out below: a. The cardholder - is the holder of the credit card b. The issuing bank - the "banking company, financial institution including non­banking financial company or any other person" Section 65 (33a) (i) of the Act which issues the card to the cardholder after checking their creditworthiness. c. The merchant establishment ("ME"....
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.... addition to the taxation of the entire transaction, a separate part of that service, i.e., by the issuing bank, in the form of authorization of credit - to be released to the provider of goods or services - is also separately to be valued and subjected to levy. CEGAT's rulings in Standard Chartered Bank and ABN Amro 14. A decision of the larger bench of CEGAT ­ Standard Chartered Bank & Ors. v. CST, Mumbai­I & Ors. 2015[40] S.T.R.104(Tri. Del) interpreted the question of service tax levy, for credit card services. This ruling was necessitated because another decision about the amended definition of credit card services, in its application for the pre amended i.e., pre­2006 era was doubted. The previous decision, so doubted, was ABN Amro Bank v. Collector of Central Excise 2011 (187) ECR181 (Tri.Delhi) (hereafter "ABN­I"). In ABN­I, the tribunal observed and held as follows: "17.4. Interchange receipt was scrutinized by Revenue and show cause notice was issued making clear in para 1 of the show cause notice that the Appellant bank was engaged in providing credit card service and services "in relation" thereto was provided for the period from 01.06....
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....at is settled, was de­linked. The Appellant bank failed to discard the evidence of Revenue on record without leading any cogent evidence to the contrary. The Appellant bank had contractual obligation to the credit cardholders for the transactions to be made using the credit card who were issued such cards by the Appellant. Law being concerned with taxable events and when material facts and cogent evidence on record including attendant circumstances demonstrated such event, Appellant's contention that it got its share from "acquiring bank" has no difference to law since the statement recorded from Vice President brought the Appellant to the net of service tax as a card issuing bank providing taxable credit card service. Adjudication cess therefore be held to be justified and the Appellant is liable to service tax for the taxable service provided." The three­member bench of the CEGAT in Standard Chartered was constituted to resolve whether the ruling in ABN­I was correct. It would be useful to first set out the four questions which the tribunal was required to consider and answer: ­ "3. The order dated 16­08­2013 referred the following que....
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....ns on the one hand, as compared with the levy under the Act, on the other was not quite the same. Relevant parts of the tribunal's discussion are extracted below: "************* *********** In the series and sequence of interdependent transactions that occur in the use of credit cards, acquiring banks generate reports for merchant settlement which are also forwarded to issuing banks through the card association network. There after issuing banks settle the amounts payable to acquiring banks after retaining an interchange fee, which is shared with the card association. The continuity and regularity of such commercial intercourse between acquiring and issuing banks, in our considered view leads to the position of acquiring banks being customers of issuing banks. Issuing and acquiring banks are recognised participants in the nuanced business of credit card transactions. The interdependent and seamless but distinct transactions that occur between the ME, an acquiring bank and an issuing bank therefore fall to be considered as a customary relationship amongst these parties. We are fortified in this conclusion by the circumstance that the Act specifies that ....
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.... 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 decisions provide if at all, guidance to this limited extent (and that is also the reality of the factual matrix), that reciprocal rights and obligations between an issuing bank and its card holder; between the ME and the acquiring bank; between acquiring and issuing banks; or between banks and the card association are predicated upon distinct contractual arrangements. The fact that services flow between these several players, which are sequential and interdependent for effectuation of credit card transactions, is indisputable. The problematic is however in identifying which among the such distinct but seque....
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....nancial institution including a non­banking financial company or any other person (instead of, any other body corporate), which issues such a card to a card holder. Sub­clauses (ii) to (vii) of this provision enumerate categories of services which fall within the scope of the taxable service. Sub­clause (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. Sub­clause (iii) enumerates services provided by any person including an issuing bank or an acquiring bank, to any other person in relation to settlements of any amount transacted through such card. The explanation under sub­clause (iii) defines an acquiring bank as one which makes payments to any person who accepts such card. Sub­clause (iv) enumerates services provided in relation to joint promotional cards, affinity cards or cobranded cards. Sub­clause (v) enumerates services provided in relation to promotion and marketing of goods and se....
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....dit card, fall within the definition and enumeration of credit card services, appears to be a facially nebulous and substantially interpretive problematic issue. 27. On a literal construction of the relevant provisions it appears atfirst blush that any service provided to a customer by a banking company etc. in relation to credit card services, is a taxable service. Acceptance of this construction would lead to infinite expansion of the taxable event. Not only would credit facilities provided by an issuing bank to its card holder fall within the scope of this service but services such as receipt and processing of credit card applications; transferring of embossing data to the issuing bank's personalisation agency; teller machine personal identification number generation; renewal or replacement of a credit card; change of address; payment updation and statement generation; settlement of amounts transacted through credit card; services provided by the owner of trade marks or bank name to an issuing bank for use of the trade mark or brand name; and a host of other services which are interspersed in the sequence of transactions occurring on the use of a credit card, would ....
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....at the meaning ascribed by the authority issuing a notification is a good guide and a contemporaneous exposition of the position of law. K.P. Varghese v. I.T.O. Ernakulam MANU/SC/0300/1981 : (1981) 4 SCC 173, reiterated the established principle that the plain meaning of a statute cannot be relied upon where it results in absurdity, injustice or uncertainty (emphasis) and in such circumstances, the Court must construe the text having regard to the object and purpose which the legislature had in view in enacting the provision, the context in which it occurs and with a view to suppress the mischief sought to be remedied by the legislation. Contemporaneous administrative exposition of the meaning of the statutory text in the speech by the Minister introducing the bill for enactment of the legislation in question is considered a legitimate aid to construction of a statute when the text is grammatically or contextually ambiguous. It is also a settled principle that a subsequent legislation on the same subject may in certain circumstances serve as a Parliamentary exposition of the former provision ­ vide Precedents referred to in paragraph 29 (supra). 40. On the basis of the....
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....guity, uncertainty and inchoateness 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." The conclusions recorded by the tribunal, in Standard Chartered (supra), are extracted below: "47. CONCLUSIONS: We answer the reference dated 16.08.2013 as under: (a) On point No. (i) in the order of reference, we hold that introductionof a comprehensive definition of "credit card, debit card, charge card or other payment service" in Section 65(33a) read with Section 65(105)(zzzw), by the Finance Act, 2006 is a substantive legisla....
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....: Case No. SCN Date Period in dispute C.A. No. 8228/2019 SCN 141/2013 23.04.2013 Oct 2007 - June 2012 SCN 258/2014 23.09.2014 Jul 2012 - Dec 2013 Statement of Demand No. 25/2015 02.03.2015 Jan 2014 - Mar 2014 Statement of Demand No. 97/2015 11.08.2015 April 2014 - May 2015 C.A. No. 89/2021 Statement of Demand No. 6725/2016 04.10.2016 April 2015­16 18. For the sake of completeness, extracts of the two show cause notices are reproduced below: Show Cause Notice 1. "2. During the course of audit of accounts of the assessee conducted by Service tax Internal Audit Group of Service tax Commissionerate, Chennai, it was noticed that the assessee was issuing Credit Cards to its customer; that Credit Card transactions typically involve two banks - an issuing bank ­ and an acquiring bank; that issuing bank issues credit cards to its customers; that acquiring banks contract merchant establishments to accept credit card payment for the goods or services sold to the customers and to facilitate such transaction, the acquiring banks provide the required infrastructure like Card Swiping Terminal (Point of Sal....
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....rom acquiring bank; that issuing bank is not rendering any service to acquiring bank and hence no service tax is applicable on the proportionate share of MDR received by issuing bank in the form of interchange; that taxing the interchange as share of MDR, in the Hands of issuing banks would amount to double taxation as the gross MDR has already been subjected to service tax; that since service tax was paid on the entire MDR, their liability, if any should be adjusted accordingly. They also enclosed (1) a Note on Credit card transactions and applicability of Service tax and (2) an excel sheet showing the workings of the Interchange earning and details of MDR. However, on their own accord, the assessee paid an amount of Rs. 15,00,00,000/­ towards Service tax vide Challan No. 11046 dated 28.03.2013. 5. The contention of the assessee that they are not rendering any service to the acquiring bank does not appear to be correct. When a credit card holder of the assessee (issuing bank) uses the card at a merchant establishment for making a purchase the account of the merchant establishment is settled directly by the card issuing bank or through an acquiring bank. The fact of is....
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....ng bank) and acquiring banks, that Card Association provides then required network and platform to the issuing banks and acquiring banks for facilitating the cards transactions; that normally acquiring bank submits the transactions (settled by merchants) to the card association in a standard file format for onward submission to the assessee (issuing bank); that the standard file format contains details like card number, acquirer reference transaction number, amount, interchange fee, date of transaction nature of merchant business etc., that based on the transaction details received from the card association, the assessee {issuing bank) bills the customer for gross amount and pays the gross amount less interchange fee (which IS credited by the acquiring banks) by remitting the Same through the card association; that assessee (issuing bank) normally receives the gross amount from their Customers based on the monthly billing statement with a due­date by which the payments needs to be made by the customer; In this regard it appears that the interchange fee is nothing but a share of the MDR earned by the assessee and forms part of their service income in relation to credit card or o....
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....on Fee to the Association is made separately by the issuing Bank and the Acquiring Bank. All the entities co­ordinate with each other to support the credit card transaction between the credit card holder and the Merchant Establishment. xxxxxxxxxxxxxx xxxxxxxxxxxxx 4.16 As submitted above, the Notice does not provide any services to the Acquiring Bank, and consequently, there is no service provider and a service recipient relationship between them. The Notice submits that the Participants i.e. Acquiring Bank and the Notice do not inter se play the role of role of a service provider and service recipient and any amount which may be exchanged by the inter se are not liable to Service tax. The Acquiring Bank and the Notice as the Issuing Bank do not have any contractual relationship. They are the Participants to the credit card transaction between the credit card holder and the Merchant Establishment and the Interchange Fee is only a portion of the tax paid Merchant Discount which is disbursed to the Notices for such participation. xxxxxxxxxxxxxx xxxxxxxxxxxxx 4.30. In the present facts all activities are undertaken by the Participants to support a transacti....
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....ly on its own share of discount, the 'acquiring bank' discharges full service tax liability on the entire interchange income on the transaction, including that on 'interchange' received by the card issuing bank. Thus, service tax is paid on the entire interchange income by the acquiring bank and there is no leakage of revenue." Letter dated 07.10.2010 sent by the Indian Bank Association to the Joint Secretary - TRU, Central Board of Excise and Customs. Interpretation of Section 65(33a) 19. The pre­existing definition of credit card services [Section 65(12)(ii)] merely mentioned "credit card services" as part of banking and financial services - without elaborating what kind of services were comprehended in the definition. The 2006 amendment segregated this, by omitting sub­clause (ii) of Section 65(12) and enacting a new Section 65(33a). 20. A plain reading of Section 65 (33a) reveals that seven distinct heads of credit card services are now comprehended within the broad description of "credit card services". Each category - falling in sub­clause (i) to (vii) deals with a specific, enumerated service. The controlling expression "credit card, debit card, charge c....
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.... person". In any case, having defined "issuing bank" widely, per sub­clause (i), Parliament need not have referred to "any person, including issuing bank"; the meaning would have been the same if sub­clause (iii) had referred only to an "issuing bank" in place of "any person". However, having regard to the essential nature of a credit card transaction, the inclusion is not directed as much to an issuing bank as to the specific reference to "an acquiring bank". That term is not defined elsewhere except in this sub­clause, and by the explanation wherein the acquiring bank is defined as a bank, company, financial institution, etc. who makes the payment to any person, who accepts such cards. 22. Crucially, then, only in Section 65(33a) (iii) does service by any person include service by the issuing bank and the acquiring bank. The use of the conjunctive "and" [in Section 65 (33a) (iii)] is to be contrasted with the other sub­clauses­ Parliament used the disjunctive "or" in all other sub­clauses. The clear intention for this difference was that service providers could be business entities providing more than one service under one sub­clause [such as sub&sh....
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....sion permitted the Collector to allow a credit of the duty already paid on such material or component parts or finished product, as the case may be. Crucially, the proviso read as follows: "Provided that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods- (i) if such finished excisable goods produced by the manufacturer are exempt from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty, and (ii) unless- (a) duty has been paid for such material or component parts under the same item or sub­item as the finished excisable goods; or (b) remission or adjustment of duty paid for such material or component parts has been specifically sanctioned by the Central Government:" This court held that the language was forthright; so "and" had to be read conjunctively. Long ago, it was held in Green v Premier Glynrhonwy Slate Co. (1928) 1 KB 561, p. 568 that "You do sometimes read 'or' as 'and' in a statute. But you do not do it unless you are obliged because 'or' does not generally mean 'and....
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....he Assessing Officer that it is necessary to get the accounts of assessee audited by an Accountant has to be formed only by having regard to: (i) the nature and complexity of the accounts of the assessee; and (ii) the interests of the revenue. The word "and" signifies conjunction and not disjunction. In other words, the twin conditions of "nature and complexity of the accounts" and "the interests of the revenue" are the prerequisites for exercise of power under Section 142(2A) of the Act." 25. Justice Joseph in his judgment, relies on the contractual arrangements in question, to conclude that "legally they are separate services as the nature of service rendered by the issuing bank is different from the service rendered by acquiring bank". In my opinion, the existence or otherwise of a contractual relationship is per se not determinative when a settlement of payment in relation to a credit card is involved. I say so because there is no contractual relationship between the acquiring bank and a card holder who might choose to use the device which is given to a merchant establishment by acquiring bank. Likewise, the merchant establishment need not have any pre­existing contractu....
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.... bank and card holder; and (ii) it is not a gift) as to why interchange fee is a separate service either. 26. There are several problems with segregating the components of "service" by the issuing bank and service by the acquiring bank, under Section 65 (33a) (iii); they are elaborated as follows: (a) In the event of segregation of the issuing bank's component,the service element would no longer be a credit card service, but providing pure advance or credit of one kind, to the customer by the issuing bank which then falls within the broad description of banking and financial services [Section 65 (12)]. (b) The segregation would ignore the reality of the businesstransaction which is the collection of a single MDR which includes two components i.e. the acquiring bank's fee, and the issuing bank's charge/fee. The revenue admits that the MDR comprises both these fees. In these circumstances there is no warrant for discriminating the component which is retained by the issuing bank in the form of interchange fee, by saying that the issuing bank has to pay service tax on that as a separate element of its fee. The other anomaly would be that the data servic....
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.... with the reasoning of Justice Joseph, that the amount received by the issuing bank, as interchange income or fee, is not towards interest. However, as previously discussed, I do not agree with the conclusion, that the issuing bank provides a separate service. 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 wellaccepted principle of classification. The relevant clause of Section 65 (33a) is reproduced below: "(iii) 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 sub­clause, "acquiring bank" means any banking company, financial institution including nonbanking financial company or any other person, who makes the payment to any person who accepts such card;" There is, in reality, one unified service provided by the acquiring bank to the merchant establishment for which....
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....of GTA service and the abatement should be extended to the charges for such intermediary or ancillary service? Clarification: GTA provides a service in relation to transportation of goods by road which is a single composite service. GTA also issues consignment note. The composite service may include various intermediate and ancillary services provided in relation to the principal service of the road transport of goods. Such intermediate and ancillary services may include services like loading/unloading, packing/unpacking, transshipment, temporary warehousing etc., which are provided in the course of transportation by road. These services are not provided as independent activities but are the means for successful provision of the principal service, namely, the transportation of goods by road. The contention that a single composite service should not be broken into its components and classified as separate services is a well­accepted principle of classification. As clarified earlier vide F. No. 334/4/2006­TRU, dated 28­2­2006 (para 3.2 and 3.3) [2006 (4) S.T.R. C30] and F. No. 334/1/2008­TRU, dated 29­2­2008 (para 3.2 and 3.3) [2008 (9) S.T.R. C61....
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.... facts of the present case, in my opinion closely reflect the situation envisioned by the CBEC. The service provided by the acquiring bank is similar to the composite service provided by a GTA. The service element provided by an issuing bank is an integral part which gets subsumed in the single unified service provided by the acquiring bank to a merchant establishment. The principle enunciated by CBEC (in the circular) that even if a composite service, consists of more than one service, should nevertheless be treated as a single service based on the main or principal service and accordingly classified, is also applicable in the case of service provided by the acquiring bank and issuing bank. The latter's role is subsumed into the service of the acquiring bank for which the gross consideration is received from the merchant establishment. The service element provided by the issuing bank in the credit card transaction at the merchant establishment is therefore not subject to service tax as it is incorporated in the service by the acquiring bank­ as one service provided to the merchant establishment and the gross consideration (MDR) received by the acquiring bank includes the inter....
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....costs are incurred by the serviceprovider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. Explanation. ­ For the removal of doubts, it is hereby clarified that for the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided. (2) Subject to the provisions of sub­rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:­ (i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured (ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service; (iii) the recipient of service is liable to make payment to the ....
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....vice provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service. Illustration 3.- A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B. Illustration 4. - Company X provides a taxable service of rent­a­cab by pro....
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....l be levied a tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub­clauses ... of Section 65 and collected in such manner as may be prescribed." 25. Obviously, this Section refers to service tax i.e. in respect of those services which are taxable and specifically referred to in various sub­clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the "value of taxable services". Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 26. In this hue, the expression "such" occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing "such" taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot be a part of that valuation as that amount is not calculated for providing such "tax....
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.... of accounts of a person liable to pay service tax" would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered by the service provider. 16. In fact, the definition of "gross amount charged" given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term "gross amount charged" to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The value of taxable services cannot....
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....ws: "64. Services by an acquiring bank, to any person in relation to settlement of an amount upto two thousand rupees in a single transaction transacted through credit card, debit card, charge card or other payment card service. Explanation. - For the purposes of this entry, "acquiring bank" means any banking company, financial institution including non­banking financial company or any other person, who makes the payment to any person who accepts such card.] inserted by Notification No.52/2016­ST, dated 8.12.2016." It reflects that legislative intent/understanding is also limited to only the acquiring bank paying service tax, on an aggregate amount. If it were otherwise, the object of granting exemption would be defeated because the acquiring bank would then be collecting (or, correspondingly, the issuing bank would be deducting) the proportion of tax leviable on the interchange fee, thus resulting in a partial levy of service tax on the quantum of transactions (Rs. 2000/­ and below) which are clearly exempt. In my opinion, therefore, Joseph, J's opinion that by the exemption, the issuing bank cannot claim exemption on the ground that acquiring bank is exemp....
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....e Commissioner. However, this service was a part of a single unified service - of settling transactions - which is provided by both the acquiring and issuing bank (which in some circumstances may well be the same bank). (B) On Conclusions II, III, and IV: I am in agreement with J. Joseph that prior to 01.07.2012, the service of issuing bank fell within Section 65 (33a) (iii); interchange fee cannot be treated as interest, as argued by Citibank; and lastly the case that credit card transaction, being a transaction in money and therefore excluded from the definition of "service" in Section 65B (44) is unacceptable. (C) On Conclusion VI: I agree that the plea to dismiss the appeals solely on the ground that no appeal was carried against the Order in ABN Amro (supra) has no merit. (D) On Conclusion V, VII­X: Service tax is undoubtedly a value added tax. 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....
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....non­payment would amount to ordinary default? Construing mere non­payment as any of the three categories contemplated by the proviso would leave no situation for which, a limitation period of six months may apply. In our opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or willful misstatement or suppression of facts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso." Other decisions - i.e. Padmini Products v. CCE [(1989) 4 SCC 275], Tamil Nadu Housing Board v Collector Central Excise [1995] Supp (1) SCC 50, etc. have given similar reasoning. Therefore, with regards to the revenue's allegation of wilful suppression, I find no merit given that this was not the allegation or scope of the Show­Cause Notices issued. Moreover, the representations sent by the Indian Bank Association to the Joint Secretary, TRU, Central Board of Excise and Customs confirm that there was a lack of clarity with regards to the method of payment of this tax, for which there was an ongoi....