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Citibank N.A. Versus Commissioner of Service Tax, Chennai

2016 (2) TMI 848 - CESTAT CHENNAI

Demand of service tax on Currency Conversion Charges (mark up of 3%) in respect of under Credit Card and Debit Card services - Scope of Banking and Financial Services Territorial jurisdiction - payment in relation to foreign transactions - Held that:- the mark up charges accruing to the appellant when card holder uses card to pay in foreign exchange abroad is not liable to service tax under 'Credit Card Services' during the impugned period. This conclusion is based both on merit of scope of 'Cre .....

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Financial Services) during the relevant period.

Since we have already held in respect of credit card services, the mark-up charges is not liable to service tax under credit card services -section 65 (12) (ii), the same is applicable to the mark-up charges accruing to the issuing bank in respect of debit card charges. - Demand set aside - Decided in favor of assessee. - Appeal No.ST/126/2009 - Final Order No.40137/2016 - Dated:- 25-2-2016 - SHRI R. PERIASAMI, TECHNICAL MEMBER AND SHRI .....

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edit card/debit card services. The DGCEI issued SCN No.68/2007 dt. 18.10.2007 demanding service tax of ₹ 5,12,64,532/- payable on the Currency Conversion Charges (mark up of 3%) in respect of under Credit Card Services for the period April 2002 to April 2006 and ₹ 24,51,538/- towards service tax payable on currency conversion charges (mark up of 3%) for the period from September 2004 to April 2006 in respect of Debit Card Service. The adjudicating authority in his impugned order conf .....

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paying ₹ 172 crores towards service tax to the LTU during the relevant period under Banking and Financial Services. He drew our attention to scheme of both credit card and debit card transactions. The flow diagram is enclosed at page 2 of the paper book for both domestic as well as for overseas transactions of credit card and debit card. He submits that while rendering credit card services, they issue credits (Money Exchange). It is to be regulated by VISA or Master Card which is a transac .....

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he case of Standard Chartered Bank and Others Vs CST - 2015-TIOL-1713-CESTAT-LB. He submits that the Larger Bench has discussed genre of "Credit Card Services" under Banking and Other Financial Services (BOFS) prior to 1.5.2006. The relied paragraphs 3,4 and 45, 46. 3.1 He further submits that even if 'mark-up' is considered as service, it is nothing but purchase and sale of foreign exchange including money changing which is specifically brought under service tax w.e.f. 16.5.20 .....

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demanded service tax under the category of Credit Card Services whereas in the case of debit card, for the same activity, the department is taking a different stand and demanding tax under "BOFS" under the category of operation of bank accounts. In both the cases, the mark up is essentially part of the foreign exchange that is to be applied for arriving at the cost of goods or services purchased by cardholder in Indian Rupee. The department cannot take two different stands to classify .....

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ces were rendered outside India and hence not taxable which is outside the scope of levy itself. He drew our attention to para-16 of SCN where the allegation in the SCN is made and also referred to page 98 of appeal memo of the order which confirms that the activities were rendered outside India. He relied the following decisions : (i) Cox & Kings India Ltd. Vs CST -2014 (35) STR 817 (Tri.-Del.) (ii) Grey Worldwide (India) Pvt. Ltd. Vs CST-2015-TIOL-2057-CESTAT-Mum He also relied Board's .....

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ndered is towards an individual and not to a commercial concern. He submits that notwithstanding above plea, for the period 15.3.2005 to 30.4.2006, the appellant's demand would be considered as exports. The services are provided and used other than in relation to commerce or industry since cardholders mainly uses his card for personal transactions. Therefore services are exported under Rule 3 of Export Rules. For the earlier period, by virtue of clarification and decision, it is not taxable. .....

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dian currency and commission charged etc. He drew our attention to their reply letter dt. 4.12.2003 at page 185 of the paper book wherein they have given a detailed information in respect of credit card business and also the nature of other activities. He further submits that department's contention that they have not mentioned in the ST-3 returns about the "mark up" under "Value of taxable service tax realised exempted from service tax" is not correct for the reasons tha .....

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hat mark-up on foreign currency transactions done using credit/debit card is not liable for service. Therefore, they are entitled for waiver of penalty by invoking Section 80. He relied the following case laws :- (1) Hindustan Steel Ltd. Vs State of Orissa- (1969) 2 SCC 627 (SC) (2) Gajanand Agarwal Vs CCE - (2009) 13 STR 138 (Tri.-Kol.) 4. On the other hand, Ld. A.R reiterated the findings of the impugned order. He drew our attention to page 79 of OIO on the charges. He drew our attention to pa .....

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OIO wherein the adjudicating authority has clearly discussed the domestic transaction as well as international transactions in respect of credit card services. He particularly referred to para 5.5 wherein the adjudicating authority clearly discussed the "mark-up" that it is not towards cost of the goods or service purchased by the customer. In the schedule of standard charges levied by appellant, "Mark-up" is mentioned as "charges" and included in the list of other .....

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erefore nature of transaction is indirectly relatable to credit card service activity. Any mark up is foreign exchange consideration or integral part of the credit card service during the relevant period. 5. Ld. A.R countered the arguments of the counsel on the reliance of Tribunal's LB decision in the case of Standard Chartered Bank and Others (supra) and submits that said case law is not applicable to this case. He submits that issue before the Larger Bench was not the transaction between .....

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s a consideration received for rendition of credit card services and it is legitimate taxable value. The dispute was confined to taxability of "Interchange fee" earned by the issuing bank and the Merchant Establishment (ME) discount retained by the acquiring bank while settling the dues of the ME with which an acquiring bank has a contractual agreement obligating settlement of such dues after retaining its commission/discount. Whereas in the present case, the transaction is between the .....

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ards foreign exchange transaction, no charges can be collected as "reimbursement" from the card holder. All the amounts were included in the credit card services. He relied Tribunal's LB decision in the case of Sri Bhagavathy Traders Vs CCE Cochin - 2011 (24) STR 290 (Tri.-LB). 5.2. On the limitation issue, Ld. A.R submits that even though department sought clarification by letter dt. 2.12.2003, adjudicating clearly brought out in para 7.1 that appellant vide their reply letter dt. .....

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cision is pertaining to excise valuation and the same is applicable to this case as far as leviability of service tax and also marketability is concerned. 6. In rejoinder, learned counsel countered the arguments of the Ld. A.R. and again he reiterated that 3% mark-up fee is only towards cost of goods or services purely on account of foreign exchange rates and it is not towards service rendered to any card holder and also submits that no SCN was issued to any other bank. He again reiterated the L .....

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wherein the as per the definition of "credit card services", under BOFS is discussed. He submits that credit card services prior to 1.5.2006 is not covered under the definition of BOFS services. He submits that after 1.5.2006, they started regularly paying the charges. Regarding Revenue's contention that services were rendered outside India, he referred to the allegations made in para-16 of the SCN (Ref. pages 170 to 172 of the appeal memo) and correspondingly the findings of OIO .....

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conversion charges in case of foreign currency transactions which were done, using either a credit or a debit card under the category of Banking and other Financial Services. In the synopsis, the appellant Bank has explained their transaction in the form of a chart which is reproduced below; Pictoral depiction of a Credit / Debit card transaction Domestic Transaction Cross-border transaction Visa/Master Card Rs.100/ Rs.100/- Issuing Bank Acquiring Bank Cardholder ME Rs.100/ Rs.100/- Goods Rs. .....

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he cost of goods and services in $ has to be converted to INR at the rate which is given by Visa which are generally the rates prevailing in the wholesale currency market on the date of the transaction or when Reserve Bank of India (RBI) notifies exchange rates on the date of transaction Plus (or minus) any adjustment which the appellant determines. The period involved is April 2002 to April 2006 in respect of credit card services and Sept 2004 to April 2006 in respect of debit card services. .....

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ant to demand service tax on the following categories of income linked to credit card business: a) revenue generated from interchange the differential amount generated by the appellant for funding the receivables. b) Revenue generated in the name of mark-up amount over and above the official conversion rate when credit card is used abroad by the card holder. .... .... ..... 10. We have heard both the sides and examined the connected appeal papers. The point for decision is tax liability of inc .....

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l is prior to this new entry. The relevant statutory provisions are as below: Section 65 (10) of Finance Act, 1994: "Banking and Financial Servicesmeans the following services provided by a banking company or a financial institution including a non-banking financial company, namely:- (i)......... (ii) credit card services; (iii)........... Later on amendments were carried out by Finance Act, 2002, 2003, 2004. Vide Finance Act, 2006 'Credit Card Services' was omitted from BOFS and a .....

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oreign exchange outside India there will necessarily be a charge for conversion of currency. The card holder is settling his dues with appellant only in rupees. The card is used for payment in foreign exchange. As such the mark up charge is directly attributable to the conversion of currency. This much is clear from the terms of usage and the card holder is also aware of the nature of mark up. The case of Revenue is that since card is an instrument which only enables such conversion of currency, .....

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ch of Tribunal in agreement with clarification in para 2.2 of Board's circular dated 09.07.2001 confirmed the restricted scope of levy prior to 01.05.2006. We find on examining the discussion in the said order and the nature of transaction now in dispute, that the mark up charges attributable to currency conversion will not fall under the category of 'Credit Card Services' during the impugned period. 12. Without prejudice to the above findings we find strong force in appellants claim .....

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ce is that it should be taxed in the jurisdiction of its consumption. Here, the service, namely facility of use of card for payment, is rendered outside India and duly consumed by the recipient-card holder outside India. We find service tax liability on such service is not sustainable for want of jurisdiction. Even if it is considered, conceding the plea of revenue that the card is issued in India and the service availed abroad is in continuation of such card usage, it is clear that the identifi .....

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he service operations. Applying this principle, we find even if alternate argument of Revenue is considered, in the present case the whole of service rendered and consumed outside India is beyond the taxable territory as per Finance Act, 1994. 13. Considering the above discussion and findings we hold that the mark up charges accruing to the appellant when card holder uses card to pay in foreign exchange abroad is not liable to service tax under 'Credit Card Services' during the impugned .....

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decision is squarely applicable to the present case. The Tribunal based its conclusions by relying the LB decision of Standard Chartered Bank (supra) and the Hon'ble Supreme Court decision in the case of Ishikawa- Ima-Harima Heavy Industries Ltd. and Tribunal decision of Cox & Kings India Ltd. (supra). 9. The Learned Authorized Representative had relied upon the decision of the Hon ble Supreme Court in the case of Union of India and Others vs Bombay Tyre international Ltd. reported in 19 .....

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inapplicable to the case on hand as in the former, the Hon ble Supreme Court was dealing with the scope of the then new section 4 of the Central Excise and Salt Act and the determination of the value in different situation and circumstances which is inapplicable to the present case as the ambit and scope of the Finance Act is on a different footing. With regard to the Larger Bench decision, the said case dealt with reimbursement in the context of money realized by the service provider. This judg .....

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on of certain services under that entry presupposes that there was no earlier entry covering such services. The Larger Bench decision in the case of Standard Chartered Bank and others Vs CST - 2015 - TIOL - 1713 - CESTAT - LB which has discussed the genre of credit card services also holds good and is squarely applicable to the facts of the present case. 11. The above rulings on this issue makes it clear that the mark-up is essentially a part of the exchange rate that is to be applied for arrivi .....

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iable to service tax under credit card services (under Banking & Other Financial Services) during the relevant period. The demand of ₹ 5,12,64,532/- confirmed in the impugned order is liable to be set aside. 12. As regards the demand confirmed on the amount of "mark up" charges accruing to the issuing bank when card holder uses debit card to pay in foreign exchange abroad. We find that the Adjudicating Authority demanded service tax under, "operation of Bank a/c" Se .....

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