TMI Blog2013 (9) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... to 1-5-2006 - Held that:- Matter referred to larger bench. Whether Merchant Establishment Discount can be said to be received "in relation to" credit card services when in fact in a particular transaction, the Acquiring bank receiving ME Discount may not have issued that particular credit card at all - Held that:- Matter referred to larger bench. - ST/143 to 145/07 & ST/117/10 - - - Dated:- 16-8-2013 - P R Chandrasekharan And Anil Choudhary, JJ. For the Appellant : Shri Shobha Ram, Comm. (AR) For the Respondents : Shri Abhijit Saha, Consultant for HDFC Bank, Shri Prasad Paranjape, Adv. for HSBC Bank Shri Naresh Thacker, Adv. Ms Sweta Rajan Ranjeet Mahtani, Adv. for ICICI Bank PER : P R Chandrasekharan There are four appeals, three filed by the Revenue and one filed by M/s Standard Chartered Bank as detailed below. S.No. Appeal No. Appellant Respondent O-in-O No. Date Service Tax involved (Rs.) Period of demand 1 ST/144/07-Mum Commissioner of Service Tax Mumbai HSBC Ltd. 01/STC/SJS/07-08 dated 22/05/2007 7,59,85,594/- 16-7-01 to 10-9-04 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al services and accordingly confirmed the demand of service tax of Rs.4,47,67,101/- for the period 01/04/2002 to 17/05/2006 along with interest thereon and also imposing penalties under Section 76 78 of the Finance Act,1994. Aggrieved of the same, the Standard Chartered Bank, the appellant in the said case is before us. In the other three appeals where the Revenue is the appellant, the adjudicating authority, i.e. the Commissioner of Service Tax, Mumbai dropped the demands of service tax for the period prior to 01/05/2006 on the ground that the activities of the acquiring bank and the credit card issuer were brought under the purview of service tax only with effect from 01/05/2006 under the category of "credit card, debit card, charge card or other payment card services". Accordingly, he set aside the service tax demands of Rs.9,40,20,442/- for the period 16/07/2001 to 31/03/2005 in respect of HDFC Bank Ltd., Rs.11,71,97,278/- for the period 01/04/2002 to 31/03/2005 in respect of ICICI Bank Ltd. and Rs.7,59,85,594/- for the period 16/07/2001 to 10/09/2004 from HSBC Bank Ltd. Aggrieved of the same, the Revenue is before us. 3. The submissions of the Ld. Counsels for the banks ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 to the Issuing bank (3) The transaction can be diagrammatically shown as under: (4) The present appeals are only with respect to taxability of transactions between Merchant Establishments and Acquiring Bank in the Part B of the diagram above. The ME Discount earned by the Acquiring Bank (the Appellant herein) is shared with Issuing Bank and Card Association as Interchange fee. Thus, ME Discount and Interchange fee are different in characteristics and arise out of different transactions. (5) The Merchant Discount earned by Acquiring Bank is not taxable for the period prior to 1 May 2006 since the definition of taxable service under section 65(105)(zm) read with the definition of banking other financial service' in Section 65(12) of the Finance Act, 1994 (the Act) covered in its ambit only services provided by the Bank to its "customer". The expression to "to a customer" appearing in Section 65(105)(zm) was substituted with "to any person" vide Finance Act, 2008 with effect from 16 May 2008. As per the clarification given in TRU Circular dated 9 July 2001, customer is the Credit Card Holder, who enjoys credit limit and pays specified fees to the issuing bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for levy of tax. Supreme Court decision in Balaji Enterprises - 1997 (92) ELT 3 (SC) refers. (9) With respect to the demand of ATM usage fee received, the Banks receive share of income from other banks when their ATM infrastructure is used by the customer of other banks. For example, if an HDFC Bank's customer uses ATM of Standard Chartered Bank, then HDFC Bank would charge its customer an ATM usage fee, say of Rs.50. HDFC Bank would pay service tax on Rs.50 charged to its customer and this fact is undisputed. HDFC Bank would share the said fee of Rs.50 with Standard Chartered Bank. The question in the appeal is about the taxability of the share of fee received by Standard Chartered Bank from HDFC Bank. The said share is not taxable in the hands of Standard Chartered Bank, inter alia, for the following reasons. Standard Chartered would receive the said share from HDFC Bank which is not its customer. For Standard Chartered, this income is not in relation to credit card services as the credit card used was not issued by the Standard Chartered Bank nor is the person using the ATM its customer. Such revenue became taxable for the first time with introduction of entry under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual situation fits in with the facts situation of the decision on which reliance is placed. Observations of courts are neither to be read as Euclid's theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgment of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgment. They interpret words of statutes; their words are not to be interpreted as statutes". Same was held by the Hon'ble Supreme Court in the case of Alnoori Tobacco Products - 2004 (170) ELT 135 (SC) where it observed that: "13. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper. 14. The following words of Lord Denning in the matter of applying precedents have become locus classicus : "Each case de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their goods or services and receive the payments for said sales through acquiring banks from credit card issuing banks. In the above appeals, the banks involved had acted as acquiring banks and collected charges/commission from merchant establishments. (b) "Banking and other financial services" were brought under tax net for the first time w.e.f. 6-7-01 and the charging section 65(72)(zm) in the Finance act 1994 read as under: "65(72)" " taxable service" means any service provided (zm) to a customer, by a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services." The term "banking and other financial services" used in Section 65(72)(zm) of the Act was defined by clause (10) of Section 65 as under: "(10) banking and other financial services" means, the following services provided by a banking company or a financial institution including a non-banking financial company, namely :- (i) financial leasing services including equipment leasing and hire-purchase by a body corporate (ii) credit card services; (iii) merchant banking s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the merchant establishment location. Acquiring bank collects the payments from the card holder, if they are their own card holder or otherwise collect the same from the card issuing bank. Therefore, there is no reason to presume that acquiring bank does not provide service in relation to Credit Card to merchant establishments. If the intention was to restrict the levy of tax to the charges collected by issuing bank from a credit card holder the legislature would have used the words service provided to a customer' in section 65(72). There is no justification to give a restricted meaning to the word customer and to limit its meaning to credit card holder when the charges are being collected by the bank from their other customers also, namely, merchant establishments for the services provided in relation to credit cards. Collecting and making payment to a merchant establishment for the goods/services purchased by a credit card holder using his credit card is undoubtedly a service provided in relation to the credit card. The acquiring bank retains part of the amount which is recovered from the Credit Card holder when he purchases good/services from a merchant establishment using his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 sub-clause, "acquiring bank" means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card ; (f) Board vide D.O.F. No.334/4/2006-TRU, dated 28-2-2006 explained the purpose of the above changes in the law, as under:- "3.19 CREDIT CARD RELATED SERVICES: Credit card services are presently taxable under banking and other financial services. The proposal is to tax comprehensively all services provided in respect of, or in relation to, credit card, debit card, charge card or other payment card in any manner. The major services provided in relation to such services are specifically mentioned under the definition "credit card, debit card, charge card or other payment card service". From the above letter of the board, it can be seen that the scope of credit card services was extended to cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Misinterpretation of definition clause by the appellant shall defeat the purpose of legislation when provision all along appeared in section 65(72)(zm) and later 65(105)(zzzw) of the Act. It was therefore, consciously explained by Govt. that credit card service earlier belonged to banking and other financial services prior to enactment of Finance Act, 2006 was regrouped in section 65(33a) by Finance Act, 2006. 16. The proposal by Finance Act, 2006 was to bring comprehensively all types of card under one definition clause so that all services provided in relation to such credit cards shall be conveniently dealt by the tax administration following cannon of convenience which is one of the considerations of classification rule. Therefore at no point of time, credit card service cannot be presumed to be excluded from levy before enactment of Finance Act, 2006. It may be stated that what was expressively clear soon after enactment of Finance Act, 2001 bringing section 65(72)(zm) to statute book read with section 65(10) of the Act was to tax "credit card service". Therefore, express statutory grant took within its fold all incidental and ancillary service using the term "in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumer for repayment and bears the risk that the card is used fraudulently - Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder. - Acquiring bank: The financial institution accepting payment for the products or services on behalf of the merchant - Independent sales organization: Resellers (to merchants) of the services of the acquiring bank. - Merchant account: This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with. - Credit Card association: An association of card-issuing banks such as Discover, Visa, Master CArd, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks. - Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks. - Affinity partner: Some institutions lend their names to an issuer to attract customers that have a strong relationship with that institution, and get paid a fee or a perce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendering of the service, other players come into the picture such as Merchant Establishments, Acquiring Bank, Credit Card Association and so on. For the credit card services rendered, the service provider charges various types of fees such as, annual/renewal fee, additional card fee, charges on revolving credit, charges on over-limit account, cash advance charges, late payment charges, cash processing fees, reward redemption fee, balance transfer processing charges, petrol transaction surcharge, railway ticket purchase fee, re-issue of lost, stolen or damaged card retrieval fee and foreign currency transaction fees. The credit card services include grant of credit for purchase of goods and services, withdrawal of cash up to certain limits, payment of utility bills such as water, electricity, telephones, etc., payment for fuel for the conveyance, booking of tickets for travel by road/air/railways, booking of tickets for movies/theatre/music programs and the like, and so on. But the essential nature of the service is provision of credit taking into account the requirements and creditworthiness of the customer who is the card holder. Understanding this essential nature of the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der collects 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, and utility bill payments, charges on over limit accounts and late payment fee, interest on delayed payment, interest on revolving credit, etc. The fees may vary based on the type of card and from bank to bank. All these charges, including interest charges are made for the services rendered. Hence they all form part of the value of the taxable service in this case. 2.2.3 The service tax is leviable only in respect of transactions which are done using a credit card on or after 16th of July 2001. Any amount paid by a customer to credit card service provider in respect of transaction done prior to 16th July, 2001 is not liable to service tax even though such amount is paid on or after the 16th July, 2001. From the above clarification, especially the underlined portions, it is clear that the service related to provision of credit facility by the banks to the credit card holder. Thus it is the card holder who is the customer specified in the taxable service returned to in section 65(72)(zm) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of credit cards but also other types of cards such as debit card, charge card and other payment cards and the scope of the term "service provider" was also widened to include not only the bank issuing the card but also acquiring bank, various transaction processors, ATM service providers, brand name/trade mark holders and so on as defined in sub-clauses (ii) to (vii) of clause (33a). Sub-clause (i) covered the services rendered by the issuing bank to the card-holder which was previously covered under sub-clause (ii) of clause (12) of section 65 prior to 01/05/2006. Thus both the concept of service and the service provider underwent significant changes in 2006. 5.6 This change in the scope of the levy was clarified by the CBEC vide D.O.F.No. 334/4/2006-TRU, dated 28-2-06. "3.19 CREDIT CARD RELATED SERVICES: Credit card services are presently taxable under banking and other financial services. The proposal is to tax comprehensively all services provided in respect of, or in relation to, credit card, debit card, charge card or other payment card in any manner. The major services provided in relation to such services are specifically mentioned under the definition "credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to another, commonly known as "interconnectivity usage service" was also brought under the tax net. In that context, a question arose whether prior to 2007, whether service tax was leviable on such interconnection services rendered by one telecom operator to another. It was clarified by the CBEC vide Circular No. 91/2/2007 dated 12-3-2007 as follows:- "4. , vide Finance Bill, 2007, a new definition of 'telecommunication service' has been incorporated vide clause (104) of section 65 of the Finance Act, 1994 and IUC has been specifically incorporated in the definition of 'telecommunication service' to make it a taxable service. Further, any service provided or to be provided, to any person, by a telegraph authority in relation to 'telecommunication service' has been made taxable. This amendment will come into effect from a date to be notified by the Government after enactment of Finance Bill, 2007. Therefore, after this amendment comes into effect, service tax would be applicable to IUC charges. 5 It is, therefore, clarified that for the period prior to the date when the amended definition of "telecommunication service" comes into effect, service tax is not applicable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service', business auxiliary service', management, maintenance or repair service', erection, commissioning and installation service' and son. In all these situations, the consistent stand of the Revenue as well as the Tribunal and the Courts has been to give effect to expanded coverage only prospectively. The same logic applies in the present case also. 5.9 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Larger Bench,- (i) Whether the introduction of the new, comprehensive definition of "credit card, debit card, charge card or other payment card service" vide section 65 (33a) read with section 65 (105)(zzzw) by the Finance Act, 2006, is substantive and seeks to levy all the transactions covered by use of Credit/Debit/Charge Card or is in continuation of the levy under Section 65 (10) or (12), as the case may be, as held in the case of ABN Amro decision in so far as credit card services are concerned? (ii) Whether the sub-clause (iii) in the definition of taxable service viz. "credit card, debit card, charge card or other payment card service" in section 65 (33a) can be said to be applicable retrospectively, i.e. from 16 July 2001 when section 65 (72) (zm) became effective? (iii) Can merchants / merchant establishments' be considered as customer' as envisaged in Section 65 (72)(zm) of the Finance Act, 1994 as it stood prior to 1-5-2006? (iv) Whether Merchant Establishment Discount can be said to be received "in relation to" credit card services when in fact in a particular transaction, the Acquiring bank receiving ME Discount may not have issued that par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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