TMI Blog2021 (12) TMI 483X X X X Extracts X X X X X X X X Extracts X X X X ..... are maintained under Section 35L(1)(b) of the Central Excise Act, 1944, read with Section 83 of Chapter V of the Finance Act, 1994. They are directed against the Orders dated 16.11.2018 and 20.11.2019, passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai (hereinafter referred to as the Tribunal , for short). 2. By the impugned Orders, the Tribunal set aside the Final Orders, by which the Principal Commissioner Service Tax, Chennai, found the Respondent/Bank, liable to pay service tax, penalty and interest on the amount of the interchange fee received by it. 3. The Respondent is a Bank. It is registered with the Service Tax Commissionerate 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the definition clause. Section 65, after being substituted by Finance Act, 2003 w.e.f. 14.05.2003, inter alia, provides for the following definitions, which I may notice. Section 65(7) defines assessee as meaning a person liable to pay the service tax and includes his agent. 8. Section 65(105) defines taxable service . Credit Card services was taxed as a part of banking and financial services. It was introduced w.e.f. 16.07.2001 under Section 65(10). On its introduction w.e.f. 16.7.2007, Section 65(12) defined banking and other financial service (BOFS for short), as including credit services. 9. There were certain amendments to this provision, which are not relevant to the 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, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), (d), (e), (f), (g.) (h), (i), (j), (k), (1), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zh), (zi), (zj), (zk),(zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), (zzy), (zzz), (zzza), (zzab), (zac), (zzad), (zzze), (zzzf), (zzzg,) (zzzh), (zzzi), (zzzj), (zzzk), (zzzł), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zzzu). (zzzv), (zzzw), (zzzx), (zzzy), (zzzz), (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 servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable service to any person shall pay Service Tax at the rate specified in section 66 in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in sub-section (1), in respect of such taxable services as may be notified by the Central Government in the Official Gazette, the Service Tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this chapter shall apply to such person as if he is the person liable 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 registratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out by a person for another for consideration, and includes 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 within 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contemporaneous executive guidance issued to clarify the scope of credit card services proposed in Finance Bill, 2001 clearly explained the reach of this provision as services whereby credit facility is provided by banks; and no other services are mentioned in the circular. The Act has not defined even illustratively, the nature and variety of services which amount to credit card services. From the orders passed in several Commissionerates 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thodology employed in the Finance Act, 2006, compels the inference that Parliament not only expressed the intention to expand the scope of the taxable service to cover services provided in relation to other cards as well but has further and expressly expanded the reach of taxation to services which otherwise may not indisputedly fall within the ambit of card services. Section 65(33a) thus 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) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax under the category of 'Credit Cards Services' under Section 65(33A) read with Section 65(105)(zzzuu) of Finance Act, 1994. To this effect the audit took place during the period from 2007-2008 and thereafter a show cause notice was issued to demand of service tax from the appellant for the period from May, 2006 to February, 2008 by way of show 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Swiping 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/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 mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 issue of credit card by the assessee as the issuing bank only enables the customer to avail cashless purchase or service from the merchant establishment which is subsequently settled 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, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable on the gross amount charged by the service provider for a consideration received in monetary terms in relation to the provision of services. The value chargeable to service tax is by the mandate of law required to be restricted only to the consideration for the service rendered and no amount beyond this can legally be charged to 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued with such card by the 'issuing bank' in the 'Point of Sale' extended by the 'acquiring bank who has agreed to settle the Merchant establishment, the amount for which purchase is made by the card Holder; when the card is swiped, the details of the Card, purchase details are transmitted to the issuing bank through 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 Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment the issuing bank has with the card holder, while the interchange fee is the consideration that accrues to the issuing bank for verifying, facilitating and extending the purchase value in line with the contractual agreement the issuing bank; has with the card association and taking the risk for collection of amounts from the Card holder. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 89 of 2021. 37. In Order dated 16.11.2018, the Tribunal dealt with the SCNs, which I have set out. The subsequent Order dated 20.11.2019, covers the period from April, 2015 to March, 2016. The Tribunal referred to the decision of the larger Bench in Standard Chartered Bank (supra). The said Judgment was found to be distinguishable. 38. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Association of Leasing Financial Service Companies v. Union of India and others (2011) 2 SCC 352 , to contend that the service tax is the value added tax and service tax is imposed every time service is rendered to the customer/client. The fallacy in the argument of the respondent that interchange fee is part of MDR, which has already suffered 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause Notice, the case of the Department is that the respondent, as issuing bank, is providing service to the acquiring bank, in the impugned Order, what is found is, that the interchange fee is by way of service to the card network. Reliance is placed on Judgment of this Court in this regard in Commissioner of Central Excise, Nagpur v. Ballarpur Industries 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 ₹ 100/-, the card network debits the account of the respondent to the extent of ₹ 98/-. This amount is remitted to the acquiring bank. ₹ 2/- remains to the credit of the issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiring bank of the service tax on the amount, including the interchange fee, was without any opportunity. The finding is impugned as being absurd, as there is no mechanism for the acquiring bank to pay part service tax on only ₹ 3/-. It is alleged to be contrary to Section 65(33a)(iii) and the Rules made thereunder. The Indian Bank Association, in which there are Nationalised Banks as well, have 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 ₹ 5/-. It pays service tax on ₹ 5/-. If the bank is again asked to pay separately on ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total ₹ 5.7 10. The above manner of settlement is diagrammatically depicted below: 11. In terms of the above diagram, the Appellant has sought to collect tax on interchange fees of ₹ 2 again in the hands of the Issuing Bank which has already been discharged in the hands of the Acquiring Bank. 12. xxx xxx xxx 13. xxx xxx xxx 14. Credit Card system: The credit card system was introduced to facilitate transactions between Merchant Establishments and Credit Card Holders. The system provided Card Holders with a convenient means to purchase goods and services without having to carry cash/ issue a cheque or have another form of credit, and enabled Merchant Establishments to reach 10 out to a larger customer base, with assured payment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anism. 15. In any credit card transaction, involving each of the five parties stated above, there arises the following distinct contractual (service) relationships, between: (i) the Issuing Bank and the Card Holder, (ii) the Acquiring Bank and the Merchant Establishment, (iii) the Card Network and the Issuing Bank, (iv) the Card Network and the Acquiring Bank. 16. In each of these contractual relationships described above, services are provided by the former to the latter and service tax is charged on the consideration for the respective services, none of which is contested by the Petitioner: (i) service provided by the Issuing Bank to the Card Holder is charged to service tax , (ii) service provided by the Acquiring 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently, the Association debits the pre-funded account of the Issuing Bank (i.e. the Noticee) on a net settlement basis (i.e. the Interchange Fee which is the share of the Issuing Bank is retained by the Issuing Bank). (vi) The Issuing Bank, the Acquiring Bank and the Associations each play their own role to ensure that a transaction can be undertaken between the credit card holder and the Merchant Establishment. (vii) The Issuing Bank subsequently collects the payment from the card holder. The Issuing Bank and Acquiring Bank further make the payment to the Associations and discharge Service tax under reverse charge mechanism on the same. Proof of payment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. The issuing bank issues the card to the card holder and the recipient becomes the card holder. There is, indeed, privity of contract between them. Other three players are the acquiring bank, the card association, the merchant establishment. 48. When a court examines a law, the court will not start with a presumption that the Legislature is not aware of ground realities and the complexities of transactions. The Legislature, on the other hand, I presume, knows how complex economic transactions are playing out, in fact, on the ground. Proceeding on the basis that Legislature has, indeed, divined what a credit card transaction entails, and who the players are, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent to the amount of ₹ 98/-. This amount of ₹ 98/- is remitted to the acquiring bank. ₹ 2/- remains undebited in the account of the issuing bank and is, undoubtedly, the interchange fee. The acquiring bank, which receives ₹ 98/-, remits ₹ 94.30 allegedly to the merchant establishment. The acquiring bank retains ₹ 3/-, which is the consideration for its service. The respondent, as issuing bank, retains ₹ 2/-. The reason why the merchant establishment receives ₹ 94.30 and not ₹ 95/- that is, ₹ 5/-, consisting of the value of the service rendered by acquiring bank and ₹ 2/- for the interchange fee earned by the respondent as issuing bank, is that allegedly, 70 paisa is purportedly paid as service tax on the gross consideration of ₹ 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 relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issuing bank and it is ₹ 98/- which alone gets credited in the account of the acquiring bank. The actual payment is finally received by the merchant establishment on the agreed date on settling the account by the acquiring bank paying the amount, after deducting ₹ 5/- as amount of merchant discount. This amount of merchant discount is made up of ₹ 2/- earned by the issuing bank. 56. It is inconceivable that without the role played by the issuing bank, which tantamounts to activity and, therefore, service, the very credit card transaction, would become possible. 57. It is also clear that credit card system is fundamentally based on the issuing bank, undertaking the risk. ₹ 98/-, in a transaction of ₹ 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 &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is in fact persons responsible for payment of service tax ) applies as if he is a person liable to pay service tax relating to such service. Section 68 must be read with Section 69, for it provides for the liability of a person to get registered. The liability is cast on the person liable to pay service tax under Chapter V. There is no case for the respondent that the case is governed by Section 68(2) for which the taxable service must be notified thereunder. That the person liable to pay tax under Section 68 must get himself/itself registered in the manner prescribed is made clear from Rule 4 of the Rules as it clearly provides that every person liable to pay service tax shall apply to get himself/itself registered and the entire provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeding on the basis that the words service provider , includes issuing bank and the acquiring bank, it is, therefore, clear that the gross amount to be charged by both the service providers, viz., the issuing bank and the acquiring bank, must be premised on the separate service provided or to be provided by them. The words gross amount cannot be the aggregate of the value of the services provided by the different service holders. The service, provided by the acquiring bank, is different from the service provided by the issuing bank. This is far too clear to require any further elucidation. The value of the service, which constitutes the measure of the tax, is dependant on the nature of the service. Apparently, the measure of the tax by way of value, has been fixed by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice provider, is different from the amount payable by the issuing bank, the nature of the services being different and the measure of tax also different. IS INTERCHANGE FEE INTEREST AND THEREFORE NOT CONSIDERATION FOR SERVICE? 65. Shri Arvind P. Datar, learned Senior Counsel, appearing on behalf of the Respondent, contended that interchange fee is actually akin to interest and it is not to be treated as a consideration for any service. He drew inspiration from Judgment of the U.S. Tax Court in Capital One Financial Corporation and Subsidiaries v. Commissioner, 133 TC No.8 (September 21, 2009). The decision was rendered under the law relating to income-tax. The statutory framework contained in the Act is different from the law which was considered by the Court. It is inapposite to lift the principle 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d within a certain time, on the dissolution of a partnership, on the arrears of an annuity where there has been misconduct or improper delay in payment, or in the case of money obtained or retained by fraud. It may also be allowed where the defendant ought to have done something which would have entitled the plaintiff to interest at common law, or has wrongfully prevented the plaintiff from doing something which would have so entitled him. This paragraph is also inapplicable to the present case. 68. The said view has been relied upon in judgment of this Court in State of Karnataka and others v. Karnataka Pawn Brokers Association and others (2018) 6 SCC 363. In the said judgment, I may notice the following: Issue (iii) 29. To decide this issue we 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the contract and towards service rendered by the respondent. I am, in the circumstances, of the view that the contention of the respondent is meritless. THE PERIOD AFTER 01.07.2012 70. With the introduction of Section 66 B accompanied by the definition of service under Section 65B (44) and the legislature further providing for the negative list of services which stood excluded from the levy of service tax in Section 66 D, the question would only be whether there is any service and whether it is excluded under Section 66 D. The relevant part of Section 65 B (44) to the dispute in question reads as follows: (44) service means any activity carried out by a person for another for consideration, and includes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that it is transaction in money and therefore it is excluded from the definition of the word service. In the decision rendered by the Delhi High Court 2013 (30) S.T.R. 347, in the context of transaction of chit, the Court, inter alia, held as follows: In a mere transaction in money or actionable claim, no service is involved; there is just the payment and receipt of the money. xxx xxx xxx A mere transaction in money represents the gross value of the transaction. But what is chargeable to service tax is not the transaction in money itself since it can by no means be considered as a service. xxx xxx xxx A clue to a proper interpretation of the exclusionary 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 9-1998 in Bajaj Auto case in respect of an earlier year allowing the benefit of the 1986 notification in respect of the gauges manufactured and captively used in the factory of M/s Bajaj Auto, had not been challenged. We can, in the circumstances, conclude that the Tribunal's interpretation was accepted by the Revenue and they are precluded from taking an inconsistent stand now. (See Union of India v. Kaumudini Narayan Dalal [(2001) 10 SCC 231 : (2001) 249 ITR 219] .) 78. The question involved in the said case, was whether the respondent assessees were entitled to the benefit of the Exemption Notification having regard to the terms of the Explanation contained 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, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing bank are service providers. It is also stated in the Written Submissions that, as under Section 65(33a)(iii), the service has been provided by both the issuing bank and the acquiring bank and charged accordingly. I will deal with the aspect relating to double taxation and the extended period of limitation separately. 82. However, as regards the exigibility of the respondent as issuing bank to service tax is concerned, I am of the view that the reasoning in paragraph-8 of the Order of the Tribunal, at all, does not commend itself as laying down the correct law. 83. No doubt, the respondent does point out that the contention of the learned Additional 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 circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of certain services, which appeared to fall under two or more categories simultaneously. The following was what was laid down: 2. The matter has been examined in the Board. It is hereby clarified that any service (transaction) can be taxed only once, even if it appears to fall under two or more categories. Therefore, before levying service tax it is essential to determine under which category a particular service falls. It should be kept in mind that service tax is a tax on the service provided and is recovered from the service provider (in some cases even from the service recipient). The position is akin to Central Excise duty which is 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 separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain, on the same service, the person in the other category, was made liable to pay tax. 90. While on double taxation, I may notice the Judgment of this Court in Sri Krishna Das v. Town Area Committee (1990) 3 SCC 645: 28. We do not find any merit in the appellant's submission that there was double taxation in this case. The expression double taxation is often used in different senses, namely, in its strict legal sense of direct double taxation and in its popular sense of indirect double taxation. Double taxation in the strict legal sense means taxing the same property or subject matter twice, for the same purpose, for the same 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same tax on the same measure of tax, with regard to the same service. In other words, if for the services rendered by the respondent as issuing bank, it has earned interchange fee, which should constitute the measure of the tax, the acquiring bank, in terms of a practice followed, it has paid tax on the said amount, then, it would be illegal and unfair to tax the respondent all over again. It is another thing that, that the respondent is the person who was liable to pay the tax on the interchange fee, after filing return under Section 70 and treating the interchange fee as the value of the taxable service. These are all matters, which 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 Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt, is that the impugned Order travelled beyond the scope of the SCNs. Thereunder, however, the complaint, which was sought to be made out was that in the SCN, the case set up by Commissioner was that the service was to the acquiring bank, whereas, the Order passed by the Commissioner was to the effect that service was provided to the Card Association. There is no ground taken in the Appeal, as such, in relation to the SCNs proceeding on the basis of the payment made by the acquiring bank, being accepted, and thereby, a new case being found in the Order. In fact, under the ground of Double Taxation , being tabooed, in paragraph-74, it 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 73(4) if there is wilful suppression by a person then the period is enlarged to five years. The contention of the respondent was that there was no positive act by it. There was only mere inaction. It was further contended that the department was aware of the receipt of interchange fee by the respondent as issuing bank. There were audits. These arguments have been rejected by the Commissioner by relying on the law laid down by this Court in Association of Leasing Financial Service Companies (supra). The aforesaid decision was rendered under Section 11 A of the Act. The relevant provisions of Section 11 A in this regard are pari 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC p.119, para 6) 6. Now so far as fraud and collusion are concerned, it is evident that the requisite intent i.e. intent to evade duty is built into these very words. So far as misstatement or suppression of facts are concerned, they are clearly qualified by the word wilful preceding the words misstatement or suppression of facts which means with intent to evade duty. The next set of words contravention of any of the provisions of this Act or Rules are again qualified by the immediately following words with intent to evade payment of duty . It is, therefore, not correct to say that there 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that there was no effort made by the respondent at seeking clarification. 106. I must notice that in the impugned order, that tribunal did not deal with the issue relating to the legality of the respondent availing the extended period. It instead has chosen to set aside the impugned order of the Commissioner on merits. 107. In this case, I would follow the course adopted by this Court in Commissioner of Central Excise, Aurangabad v. Bajaj Auto Ltd., Waluj, Aurangabad Through Its Vice-President (Materials) and others (2010) 13 SCC 117. 108. I am of the view that as 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.04.2013. I am also of the view that the respondent should be provided an opportunity to establish that the acquiring bank has discharged the tax liability in regard to interchange fee. 110. As regard, the question of interest and penalty is concerned, no doubt, the case of the respondent is that there was an interpretational issue. The practice in the banking industry, is relied on. In this regard, I would think that if the respondent is able to establish that the acquiring bank, indeed, discharged the tax liability 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Entry 92C too was introduced in the Union List for the levy of taxes on services. The number of services subjected to the levy, burgeoned to 119 in 2011 12. With effect from 2012, there has been a paradigm shift in the levy of service tax rather than levying tax on enumerated services, tax is imposed on all services except those listed in the negative list Listed in the newly introduced Section 66D. The negative list, in 2012 contained 39 different services exempt 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 sub clauses 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below: Section 65 Definitions: In this Chapter, unless the context otherwise requires, (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) 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 nonbanking financial company or any other person, who makes the payment to any person who accepts such card; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncludes,- (i) an individual, (ii) a Hindu Undivided Family, (iii) a company, (iv) a society, (v) A limited liability partnership, (vi) a firm, (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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence 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 : sub section (2A) of section 5A, sub section(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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charging service tax (1) Subject to the provisions of this Chapter, service tax chargeable on 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 provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66) is on 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 non banking 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 ) is the ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, Mumbai I 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., pre 2006 era was doubted. The previous decision, so doubted, was ABN Amro Bank v. Collector of Central Excise 2011 (187) ECR181 (Tri.Delhi) (hereafter ABN I ). In ABN I, 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 01.06.02 to 31.04.06 and consideration was received f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 three member bench of the CEGAT in Standard Chartered was constituted to resolve whether the ruling in ABN I 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 16 08 2013 referred the following questions of law: i) Whether the introduction of the new, comprehensive definition of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the provider of credit card services is identified as a banking company, a financial institution including a non banking financial company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 sequential and interdependent transactions amount to services provided in relation to credit card services, in the context of the definition and enumeration of BOFS, in relevant provisions of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices which fall within the scope of the taxable service. Sub clause (ii) enumerates receipt and processing of applications, transfer of embossing data to issuing bank's personalisation agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation. Sub clause (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 sub clause (iii) defines an acquiring bank as one which makes payments to any person who accepts such card. Sub clause (iv) enumerates services provided in relation to joint promotional cards, affinity cards or cobranded cards. Sub clause (v) enumerates services provided in relation to promotion and marketing of goods and services through such card. Sub clause (vi) enumerates services provided to an issuing bank or the holder of such card, for making use of automated teller machines of the provider. Sub clause (vii) enumerates services provided by the owner of trademarks or brand na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 all be services provided in relation to credit card services. These services are expressly enumerated in subclauses (ii), (iii), (vi) and (vii) of Section 65(33a), w.e.f. 01.05.2006. On Revenue's interpretation, these services are subsumed within credit card services on account of the in relation to phrase. Wherever a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urdity, 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 principles and guidance derived from aforementioned authority we are compelled to the conclusion that in the context of BOFS, credit card services cover only such services as are provided by an issuing bank to a card holder. This conclusion is fortified by the clarification issued in Board circular dated 09.07.2001, RBI circular dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded 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 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 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2015 16 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 Sale Machines), payment gateway etc.; that assessee s Credit Card customers are using Point of Sale (POS) machines ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onate 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 ₹ 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 issue of Credit card by the assessee as the issuing bank only enables the customer to avail cashless purchase or service from the merchant establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 due date 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 other payment card services and the interchange fee was collected by them from the acquiring banks for the period from October' 2007 to June' 2012 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween 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 transaction where a Merchant Establishment is able to accept a payment from a credit card holder through the modality of credit cards. The gross amount attributable in relation to such servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 pre existing 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 sub clause (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 sub clause (i) to (vii) deals with a specific, enumerated service. The controlling expression credit card, debit card, charge card or other payment card services includes any services provided broadens the coverage of this species of service, in contrast with the pre existing law. This inclusion by specific enumeration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sub clause, 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 sub clauses Parliament used the disjunctive or in all other sub clauses. The clear intention for this difference was that service providers could be business entities providing more than one service under one sub clause [such as sub clauses (ii), (iv), (vi) and (vii)]. The use of the conjunctive and in clause (iii) therefore, is telling and consequently, in my opinion should receive literal interpretation. I, therefore, disagree with the judgment of K.M. Joseph, J on this aspect. 23. There can be no debate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture 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 sub item 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' and 'and' does not generally mean 'or'. In R v Oxfordshire County Council and Others, Ex Parte Sunningwell Parish Council 1999 (3)All ER 385, Section 22(1) of the Commons Registration Act 1965 contains a three part definition of a town or village green, usually called classes (a), (b) and (c). They were: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exity 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 pre existing contractual relationship with the issuing bank. Neither the merchant establishment nor the card holder has any pre existing relationship with the network provider whose role has been kept out of the definition clause. The network service provider (VISA, Master Card, RuPay, etc.) in fact provides the platform for the completion of the transaction. The nature of the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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 service provided by the card association (enabling use of software which facilitates instantaneous verification of the customer s credentials, authentication of the transaction and the authorization of payment) is not required to undergo a separate treatment, as is now insisted upon in the case of the segregated transaction with the issuing bank. (c) There are predominantly only two con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 sub clause, 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 gross value of consideration is the merchant discount rate (MDR). This single MDR includes the interchange fee. Therefore, the issuing bank s service is subsumed into the service of the acquiring bank to make it a unified service to the merchant establishment. Evidently a merchant establishment does not have any contractual liability to pay inter change fee to the issuing bank. 28. By way of analogy, a reading of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 well accepted principle of classification. As clarified earlier vide F. No. 334/4/2006 TRU, dated 28 2 2006 (para 3.2 and 3.3) [2006 (4) S.T.R. C30] and F. No. 334/1/2008 TRU, dated 29 2 2008 (para 3.2 and 3.3) [2008 (9) S.T.R. C61], a composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified. While taking a view, both the form and substance of the transaction are to be taken into account. The guiding principle is to identify the essential features of the transaction. The method of invoicing does not alter the single composite nature of the service and classification in such cases is based on essential character by applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interchange fee shared with the issuing bank, by the acquiring bank. This is identical to the position in GTA service which was clarified by the Board in the above referred circular. This view is also supported by the newly enacted Section 66F (3) (b) which is effective from 1 July 2012, which states that naturally bundled services should be treated as provision of single service. The CBEC s circulars are binding on the revenue. Therefore, interchange fee earned by the issuing bank which forms an integral part of service of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of sub rule (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 third party; (iv) the recipient of service authorises the service provider to make payment on his behalf; (v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; (vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; (vii) the service provider recovers from the recipient of service only such amount as has been paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rent a cab by providing chauffeur driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X. It is evident, from a read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue 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 taxable service . That according to us is the plain meaning which is to be attached to Section 67 (unamended i.e. prior to 1 5 2006) or after its amendment, with effect from 1 5 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that the High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider for such service and the valuation of tax service cannot be anything more or less than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider. 35. These decisions though rendered in different contexts, in my opinion, serve to highlight that the basis for levying service tax, is the total or gross value of the amount ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (₹ 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 exempted, therefore, is not accurate. It is also important to remember that what is taxed, is the value of the transaction and it is the transaction that is exempt, not the service provider. Therefore, the express use of only acquiring bank is indicative that Parliament was well aware of how credit card transactions are conducted. 37. I am therefore, not in agreement with the reasoning of Joseph, J. that service provider under Section 67(1)(i) imply that both the acquiring bank and issuing bank are service providers, and the gross amount on which the tax is collected, is not the aggregate of the value of the services provided by the different service holders. The judgement of Joseph, J. with respect, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that no appeal was carried against the Order in ABN Amro (supra) has no merit. (D) On Conclusion V, VII X: 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 by both the acquiring and issuing bank Citibank cannot be called upon to pay the service tax again as this would result in double taxation. In view of my previous discussion, I do not agree with the reasoning in ABN Amro (supra). For the same reasons, I am of the opinion that the question of remand to the tribunal does not arise. The only point of contention seems to be whether they were reflecting the payment of service tax separately in their ledgers, as issuing and acquiring bank. However, as a result of the reasons already elaborated, this is rendered to be a purely academic question. A question of returns should not detain this Court, because the business reality is that every bank is both a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
