TMI Blog2019 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ial) And Shri Madhu Mohan Damodhar, Member (Technical) Shri N. Venkataraman, Senior Advocate for Ms. Sweta Rajan, Shri Ranjeet Mehtani Shri Karthi Visalakshi, Advocates for the Appellants Shri K. Veerabhadra Reddy, ADC (AR) for the Respondent ORDER Per Bench 1.1 The facts of the case narrated in paragraphs 2 to 2.2 of the impugned order is as under:- During the course of audit of accounts of the assessee by Service Tax Internal Audit Group of Service Tax Commissionerate, Chennai, it was noticed that the assessee was issuing credit cards to its customers; 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 transactions, the acquiring banks provide the required infrastructure like Card Wiping Terminal (Point of Sale Machines), payment gateway etc.; that assessee s credit card customers are using Point of Sale (POS) machines installed by acquiring banks in various merchant establishments / service es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terchange fee received by the issuing bank is just a share of the MDR received from 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 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 ₹ 15,00,00,000/- towards service tax vide Challan No. 11046 dated 28.3.2013 . 1.2 Four show cause notices were issued to the appellants covering the period from October 2007 to March 2015 alleging that service tax liability is required to be discharged on these fees under taxing entry for Credit Card Services amounting to ₹ 1,64,28,86,059/- with interest thereon as also propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le transaction. (v) Said differently, the settlement (payment for) the transaction takes place in a reverse manner, inasmuch as the Acquiring Bank charges the entire fees for services provided by itself and by the Issuing Bank, and thereafter, the fees so received is shared with the Issuing Bank. This settlement system is followed since there is no privity of contract between the Acquiring Bank and Issuing Bank, or the Merchant Establishments and Issuing Bank inter se. Therefore, by default, the Interchange Fee (as part of the MDF) can only be collected at the Acquiring Bank s end through his client, and in no other way, in the process of settlement which is based on a technological platform. (vi) If the collection of fees (of the Acquiring Bank and the Issuing Bank) was broken into two parts and so changed, the Issuing Bank s fee charged to the Card Holder (its customer) may have borne the form and shape of interest and not suffered service tax. Numerically, as a result of the settlement mechanism presently followed, the entire transaction has suffered service tax. The Interchange Fees that is earned by the Issuing Bank is taxed as part of and in the hands of the Acquiring B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1971 SCC (1) 85] (ix) On the other hand, on identical factual matrix, the Tribunal in a recent decision vide Final Order No. 71601/2018 dated 23.7.2018, in the case of ABN Amro Bank NV Vs. Commissioner of Central Excise, Noida has held that since the acquiring bank has paid service tax on whole of the amount (MDF and Interchange Fees), and out of which only some amount has been shared with the issuing bank, no service tax is payable by the issuing bank. The said judgment is directly applicable and binding in the present case since (a) the demand in ABN Amro s case was for the period 2006 2008, which period is covered in the present case as well, (b) the demand was raised under the taxing entry of Credit Card Services as in the case of this appellant and (c) in practice, the banking industry has followed a uniform approach by taxing the entire amount (of MDF and Interchange Fee) in the acquiring bank s hands and thereafter sharing the Interchange Fee component with the issuing bank, which fact has been clearly brought forth and informed in the filing with the CBEC on various dates and way back in 2006. (x) The United States Tax Court in the case of Capital One Financial C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Services and made separate taxable category with effect from 1.5.2006. He much relied upon the decision of Larger Bench in the case of Standard Chartered Bank Ltd. (supra). He referred to para 41 of the judgment and argued that the Larger Bench had also analyzed the issue of interchange fee received as settlement services and observed that such services have brought within taxable net with effect from 1.5.2006. The interchange fee is consideration received for providing credit facility to the customer and therefore taxable at the hands of issuing bank who has issued the credit card to the customer. 4. Heard both sides and have carefully gone through the concerned records. 5.1 We find that the issue in dispute concerns taxability or otherwise of Interchange Fees which accrues to the appellant as a fallout of each credit card transactions by a holder of a credit card issued by the former. 5.2 From the submissions made by both sides, we have been able to comprehend the roles of various parties involved in such credit card transactions as under:- In credit card transactions, following five parties are involved, namely: a) Issuing Bank (IB) The Issuing Bank issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside India. The charges levied by CN, whether to the Acquiring Bank or Issuing Bank suffer service tax under the reverse charge mechanism. 5.3 The transaction processes has been capsulated in following flow charts in the impugned order, which is as under:- 5.4 In the flow charts given above, for transaction of ₹ 100/- shown, the interchange fee of ₹ 2/- is the amount which is under dispute in these appeals. Revenue insists that it would fall within the ambit of the service tax liability under Credit Card Services. 5.5 Appellant, however, contests the demand on the following counts:- No service is rendered There is no service provider-service recipient relationship There is no consideration payable by the service recipient to the service provider Interchanging fees is in the nature of interest on loan Any attempt to levy service tax on interchange fee at the hands of issuing bank would amount to double taxation Transaction in money is not liable to service tax Transaction in its entirety is one of trading Judgment in the case of Standard Chartered not applicable in the present case. 5.6 On the other hand, the adjudicatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the Tribunal did not have any occasion to examine whether or not the activity of issuing bank was a service and covered by the taxing entry for Credit Card Services. 5.9 We further find that in the recent decision of the Tribunal in ABN Amro Bank (supra), the case law of Standard Chartered Bank had been agitated before the Bench. Further, on going through Standard Chartered Bank decision, we find that the primary issue that was dealt with by the Larger Bench of the Tribunal was in respect of services provided by issuing bank to acquiring bank and acquiring bank to merchant establishment. The Tribunal had held that these were distinct services and outside the purview of Credit Card Services prior to 1.5.2006. Of course, the Larger Bench had held that interpretation in respect of the reference whether merchant establishment discount can be said to be received in relation to credit card services in particular transaction wherein bank receiving discount may not have received that and the credit card delivered. 5.10 Viewed in this light, notwithstanding the contentions of the ld. AR, we find that the Standard Chartered Bank decision of Larger Bench supra does not help the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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