Commissioner of GST And Central Excise Vs Citi Bank N.A. (Supreme Court of India)
Issue- Whether Interchange fees received out of Merchant Discount Rate(MDR) by the issuing bank from accepting bank in relation to credit card transactions carried on a customer is liable to be taxed to service tax in the hands of the bank collecting such interchange fees?
A Division Bench of the Supreme Court took a divergent view on the issue, whether the card-issuing bank charging an interchange fee for credit card transaction is to be subjected to service tax for the same. Now probably a larger bench will be constituted to settle the issue.
Held by K.M. JOSEPH, J.
109. Therefore, the upshot of the above discussion is as follows:
I. I find that the respondent, as issuing bank, was providing service, as found by the Commissioner;
II. For the period prior to 01.07.2012, the service of the respondent, as issuing bank, squarely fell within Section 65(33a)(iii) of the Act;
III. I reject the contention of the respondent that interchange fee is to be treated as interest and, therefore, not taxable under the Act;
IV. I hold that the case based on the credit card transaction, being a transaction in money and, therefore, excluded from the definition of “service” in Section 65B(44), is unacceptable;
V. The Order of the Tribunal in ABM Amro (supra), dealing with the position of an issuing bank, under the framework of the Act, is patently unsustainable;
VI. In the facts of this case, I decline to dismiss the Appeal only on the ground that no Appeal was carried against the Order in ABN Amro (supra);
VII. The respondent, as issuing bank, was liable to pay service tax, under Section 68(1), being the service provider. Being liable to pay the tax under Section 68(1), it was also liable to file the Return including the amount of interchange fee;
VIII. The acquiring bank was obliged to value the service, which it provided or agreed to provide. The measure of tax, which is found in Section 67(1)(i), is entirely related to the service that the acquiring bank provided and agreed to provide. Likewise, the value of the service provided by the issuing bank, as found by me, and which would be the value of the service, for the purpose of Section 67(1), is relatable to the services it provided. Therefore, the respondent bank was liable to include the interchange fee and file Return and pay the tax on the same;
IX. While the service tax may be a value added tax, all that it can mean, is that, for separate services, tax is payable on each separate service. The concept of value added tax cannot mean that if the tax is already paid by the acquiring bank in this case, on the amount of interchange fee, for the service provided by the respondent as issuing bank, the respondent bank should be called upon to pay the service tax all over again. Such an exercise, would undoubtedly constitute double taxation;
X. The Tribunal has not considered whether there was suppression within the meaning of Section 73 of the Act by the respondent in relation to part of the period covered by Show Cause Notice dated 24.04.2013. 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 the respondent to produce material to show that the acquiring bank had discharged the liability of the respondent as issuing bank with regard to the interchange fee for the period covered by the Show Cause Notices. Toward this end, I make it clear that the Tribunal will be free to permit the respondent to produce the material before the Commissioner and to call for a finding from the Commissioner;
c. It will be open to the Tribunal to call upon the appellant to call for the records from the acquiring bank to arrive at a proper finding in this regard;
d. If the amounts are seen paid by the acquiring bank, then, necessarily, the Orders passed by the Commissioner will stand set aside. Conversely, should it not be proved that payment was made, the Orders of the Commissioner will stand subject to the finding relating to the availability of extended period under Section 73 in relation to the SCN dated 24.04.2013.
Held by S. RAVINDRA BHAT
38. For the sake of clarity and completeness, I have briefly summarised my position in relation to each of the conclusions drawn by Joseph, J. in his judgment (paragraph 109):
(A) On Conclusion I: I am in agreement that the respondent Citibank, as issuing bank was providing service, as found by the Commissioner. However, this service was a part of a single unified service – of settling transactions – which is provided by both the acquiring and issuing bank (which in some circumstances may well be the same bank).
(B) On Conclusions II, III, and IV: I am in agreement with J. Joseph that prior to 01.07.2012, the service of issuing bank fell within Section 65 (33a) (iii); interchange fee cannot be treated as interest, as argued by Citibank; and lastly the case that credit card transaction, being a transaction in money and therefore excluded from the definition of “service” in Section 65B (44) is unacceptable.
(C) On Conclusion VI: I agree that the plea to dismiss the appeals solely on the ground that no appeal was carried against the Order in ABN Amro (supra) has no merit.
(D) On Conclusion V, VIIX: Service tax is undoubtedly a value added tax. However, having characterised the service to be a single unified service – wherein service tax, by way of business convenience, is collected from/remitted by the acquiring bank on the value (whole MDR which includes the interchange fee that is retained by the issuing bank) taxable for the single service rendered 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 an issuing bank and an acquiring bank, and it is nobody’s case that the banks are not filing their returns on service tax.
As regards the revenue’s allegation of wilful suppression, the settled view of this court, is best explained from the following extract of a previous three judge ruling, in Cosmic Dye Chemical v. Collector Of Central Excise40 where it was observed – in relation to Section 11A of the Central Excise Act, 1944, (which is in pari materia with Section 73 of the Finance Act, 1994) that:
“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 constitute a permissible ground for the purpose of the proviso to Section 11A. Misstatement or suppression offact must be wilful.”
This decision was followed in M/s Uniworth Textiles v. Commissioner of Central Excise41 where it was stated that:
ªThe conclusion that mere nonpayment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of nonpayment would amount to ordinary default? Construing mere nonpayment as any of the three categories contemplated by the proviso would leave no situation for which, a limitation period of six months may apply. In our opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or willful misstatement or suppression offacts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso.”42
Therefore, with regards to the revenue’s allegation of wilful suppression, I find no merit given that this was not the allegation or scope of the ShowCause Notices issued. Moreover, the representations sent by the Indian Bank Association to the Joint Secretary, TRU, Central Board of Excise and Customs confirm that there was a lack of clarity with regards to the method of payment of this tax, for which there was an ongoing dialogue between the banking institutions and Central Government, negating any claims of “wilful suppression”. One cannot also be oblivious of the fact that the position of law, was in a state of flux, at the relevant period. Hence, and in view of the reasons given above, the present case does not warrant remand to the Tribunal, and this dispute should, in my opinion, stand finally concluded at this stage.
39. Therefore, for the reasons already elaborated above – I am of the opinion that these appeals by Revenue ought to be dismissed.
FULL TEXT OF THE SUPREME COURT JUDGMENT
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 8228 OF 2019
COMMISSIONER OF GST AND CENTRAL EXCISE … APPELLANT(S)
VERSUS
M/S CITI BANK N.A. … RESPONDENT(S)
WITH
CIVIL APPEAL NO.89 OF 2021
J U D G M E N T
K.M. JOSEPH, J.
These Appeals 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 on the interchange fee, besides penalty and interest. The notices covered periods prior to 01.07.2012 and also thereafter. The Respondent filed its explanation to which we shall refer to hereinafter. In short, its case is that the Respondent is not performing any service so as to render it exigible to service tax on the interchange service. The interchange fee is in the nature of interest it has earned in the credit card transaction with the customer. It is also contended that, in fact, the interchange fee has already been subjected to service tax in the hands of the acquiring bank. Therefore, it was pointed out that if the Respondent is again visited with service tax, it would be plainly impermissible as it would amount to double taxation. It was rejecting the contentions of the Respondent that the Principal Commissioner found that the Respondent did perform services and it, therefore, earned the interchange fee. It is further found that there is no evidence to show that the acquiring bank had paid tax on the amount which was earned as interchange fee by the Respondent. The case of interchange fee being interest and a ‘transaction in money’ was rejected.
4. The Tribunal, on the other hand, by the impugned Order, has essentially purported to place reliance on the Order passed by the Tribunal in M/s ABN Amro Bank v. Commissioner of Central Excise and Customs dated 23.07.2018 and found that the Respondent is not liable, resulting in the Order of the Principal Commissioner being set aside.
5. Heard Shri Balbir Singh, learned Additional Solicitor General, on behalf of the Appellant and Shri Arvind P. Datar, learned Senior Counsel, appearing on behalf of the Respondent.
6. Service Tax had its humble beginnings with the passing of the Finance Act, 1994 with only three taxable services. Over the years, a large number of taxable services came to be added by various Finance Acts. Before I refer to the taxable service in question, I must note the statutory framework.
THE STATUTORY FRAMEWORK FOR SERVICE TAX
7. The statutory framework of the service tax in India is traceable to the Chapter V and Chapter VA of the Finance Act, 1994 (hereinafter referred to as ‘the Act’, for short). Section 64(3) provides that the Chapter V, shall apply to taxable services provided on or after the commencement of the Chapter. The appointed day is 01.07.1994. Section 65 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.
8. 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.
9. By virtue of the Finance Act, 2006, credit card service was omitted from the definition of Section 65(12), which was the provision which defined banking and other financial services. With effect from 01.05.2006, Section 65(33a) came to be inserted and it reads as follows:
“65(33a) “credit card, debit card, charge card or other payment card service” includes any service provided,—
(i) by a banking company, financial institution including non-banking financial company or any other person (hereinafter referred to as the issuing bank), issuing such card to a card holder;
(ii) by any person to an issuing bank in relation to such card business, including receipt and processing of application, transfer of embossing data to issuing bank’s personalisation agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation;
(iii) by any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card.
Explanation.—For the purposes of this sub-clause, “acquiring bank” means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card;
(iv) in relation to joint promotional cards or affinity cards or co-branded cards;
(v) in relation to promotion and marketing of goods and services through such card;
(v) by a person, to an issuing bank or the holder of such card, for making use of automated teller machines of such person; and
(vi) by the owner of trade marks or brand name to the issuing bank under an agreement, for use of the trade mark or brand name and other services in relation to such card, whether or not such owner is a club or association and the issuing bank is a member of such club or association.
Explanation. —For the purposes of this sub-clause, an issuing bank and the owner of trade marks or brand name shall be treated as separate persons;”
[Section 65(33a) of the Act]
11. Still, I may also notice that Section 65(105) (zzzw) refers to any service provided or to be provided to any person by any other person, in relation to credit card, debit card, charge card or any other payment card service, in any manner, as a taxable service.
12. Till 01.07.2012, Section 66 of the Act was the charging section. It reads as under:
“66. Charge of Service Tax-There shall be levied a tax (hereinafter referred to as the Service Tax) at the rate of twelve per cent. of the value of taxable services referred to in sub-clauses (a), (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 service tax on and after Finance Act, 2012.—
There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.”
Service has been defined in Section 65B(44). The Negative list is contained in Section 66D.
14. I have referred to these provisions as the impugned order covers periods embraced by Section 66 and 66B.
15. The next provision to bear in mind Section 67. Section 67 deals with valuation of taxable service for charging. It reads as follows:
”67. Valuation of taxable services for 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 in money, 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 not wholly 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.
(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
(4) Subject to the provisions of subsections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.”
16. Section 68 deals with the persons responsible for payment of service tax and it reads as follows:
“68. Payment of Service Tax. –
(1) Every person providing taxable 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 registration to the Superintendent of Central Excise.
(2) The Central Government may, by notification in the Official Gazette, specify such other person or class of persons, who shall make an application for registration within such time and in such manner and in such form as may be prescribed.”
18. The relevant Rule in the Service Tax Rules 1994 is Rule 4.
19. Section 70 deals with furnishing of return and it reads as follows:
“70. Furnishing of returns. — (1) Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency and with such late fee not exceeding twenty thousand rupees, for delayed furnishing of return, as may be prescribed.
(2) The person or class of persons notified under sub-section (2) of section 69, shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed.”
20. Rules 7 of the Rules deals with the Return. As I have already noted for the period prior to 01.07.2012, the Act imposed Service Tax on the value at the rate mentioned of the value of the taxable services which were referred to thereunder (various provisions enumerated in Section 65 clause 105) which included Section 65 (105)(zzzw), which reads as follows:
“(105) “Taxable service” means any service provided or to be provided –
(zzzw) to any person, by any other person, in relation to credit card, debit card, charge card or other payment card service, in any manner;”
21. Necessarily, this must be read with Section 65 (33a), which I have adverted to. This remained the scheme of service tax till 01.07.2012. For the period after 01.07.2012, there is a paradigm shift as Section 66B took over as the charging section and thereunder what is relevant is to ascertain whether there is a service and if there is service whether it is included in the negative list. If there is service and it is not included in the negative list and the service is provided or agreed to be provided in the taxable territory by one person to another the charge under section 66B is attracted. The method of collection is done in the manner provided in the Rules. Service has come to be defined in Section 66B (44) 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 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 1.
22. The said decision is reported in 2015 [40] S.T.R. 104 (Tri. – Del). A larger Bench of the Tribunal (three Members) went on to consider whether the new definition of the credit card services under Section 65(33a) read with Section 65(105)(zzzw), was substantive or it was a continuation of the levy under Section 65(10) or Section 65(12). It also considered the question, whether provisions under Section 65(33a) would apply retrospectively from 16.07.2001.
23. I notice the following views expressed by the Tribunal:
“27. On a literal construction of the relevant provisions it appears at first blush that any service provided to a customer by a banking company etc. in relation to credit card services, is a taxable service. Acceptance of this construction would lead to infinite expansion of the taxable event. 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 sub-clauses (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 an issuing bank hives of some of its activities in relation to credit card operations, such as receipt and processing of credit card applications and the like and these services are provided by a outside agency, these would nevertheless fall within the ambit of BOFS, though not statutorily so identified and expressed. The scope of credit card services and BOFS would therefore be perpetually nebulous and its contours indeterminate, assessees contend. Assessees also urge that acceptance of Revenue’s interpretation would lead to perpetual ambiguity in ascertaining the range and variety of transactions falling within the ambit of credit card services and such interpretation should therefore be avoided on the principle of doubtful and ambiguous taxation and inchoate specification of the taxable event in a fiscal legislation.
xxx xxx xxx
“44. Board circular dated 09.07.2001, 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 evade tax.
For the above reasons as well we are compelled to the interpretation that the scope of services falling within the ambit of credit card services, notwithstanding the phrase “in relation to” in the enumerative provision of the Act during the relevant period, was ambiguous, uncertain and invites purposive, dynamic and strained interpretation.
The express enumeration of several services falling within the ambit of card services (including credit card services) post 01.05.2006, in drafting the definition of this service in Section 65(33a) eradicates the ambiguity and uncertainty regarding scope of services covered under card services. The Circular dated 28.02.2006 issued by TRU, Ministry of Finance to explain the ambit of services introduced by Finance Bill, 2006 clarifies (in para 3.19) as under:
3.19. CREDIT CARD RELATED SERVICES: Credit card services are presently taxable under banking and other financial services. The proposal is to tax comprehensively all services provided in respect of, or in relation to, credit card, debit card, charge card or other payment card in any manner. The major services provided in relation to such services are specifically mentioned under the definition “credit card, debit card, charge card or other payment card service”.
The speech of the Hon’ble Finance Minister on 28.02.2006 while presenting the Budget for 2006-07 explains the purposes underlying introduction inter-alia of card services. At para 153 of the speech, the Hon’ble Minister states:
I also propose to expand the coverage on certain services now subject to service tax. I do not wish to burden the house with the details which are available in the Budget paper.
The following is clear from Section 65(33a) read with Section 65(105)(zzzw) of the Act.
(a) The scope of service tax levy is extended to services provided in respect of other cards such as debit card, charge card or other payment card, apart from credit card;
(b) The several and intervening services which occur in the use of cards are enumerated in sub-clauses (i) to (vii) of the definition, clearly conveying the intention to cover these expressly enumerated services as taxable events under the provisions;
(c) In Section 65(105)(zzzw) while retaining the phrase “in relation to”, the phrase “in any manner” is added. The precision and clarity of the detailed drafting methodology 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) as part of the BOFS;
(b) On point No. (ii) we hold that sub-clause (iii) in Section 65(33a) is neither intended nor expressed to have a retroactive reach i.e. w.e.f. 16.07.2001. Services enumerated in these sub-clauses are not implicit in the scope of credit card services;
(c) On point No. (iii) of the reference, we hold that a Merchant/Merchant Establishment is “a customer” in the context of credit card services enumerated in Section 65(72)(zm), subsequently Section 65(105)(zm) and a fortiori an acquiring bank is “a customer” of an issuing bank.
(d) On point No. (iv), we hold that ME discount, by whatever name called, representing amounts retained by an acquiring bank from out of amounts recovered by such bank for settlement of payments to the ME does not amount to consideration received “in relation to” credit card services.”
THE DECISION OF THE TRIBUNAL IN M/S ABN AMRO BANK NV PRESENTLY KNOWN AS ROYAL BANK OF SCOTLAND NV V. COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SEVICE TAX, NOIDA [DECISION RENDRED ON 23.7.2018]2
25. This decision is the relied upon order in the impugned order. The period in dispute in the said case was May, 2006 to February, 2008. I may notice paragraphs-2, 6, 8 and 9. On the said basis, the Tribunal proceeded to set aside the order impugned, which was demand for service tax along with interest and penalty.
“2. The facts of the case are that the appellant is a banking company and engaged in the business of issuance of ‘credit cards’ to their customers. The credit cards business having a system to operate, how the system is operated i.e., a bank issue the credit card is known as Issuing Bank to its customers When the customer uses that credit card, he goes to the Merchant purchase the goods by swiping the card, thereafter immediately transaction goes to the acquiring bank. The acquiring bank makes the payment to the merchant. At that time, the acquiring bank charges the certain amount for the service provided by them to the merchant. On that amount, the acquiring bank is discharging their service tax liability. Out of that amount of service retained by the acquiring bank, some amount is transferred to the issuing bank. The case of the Revenue is that the issuing bank receiving certain commission from the acquiring bank, on that amount they are liable to pay service 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.
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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.).
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8. On going through the said definition, we find that if the appellant is receiving certain commission in relation to settlement of any amount, then and only then the said activity is covered under credit card services. Admittedly, the appellant is not engaged in any activity of settlement of the amount. In fact, the appellant is not the settlement agency and is acting only as issuing bank. It is admitted position by the learned Commissioner in the impugned order. In that circumstances, we hold that the amount received by the appellant does not qualify as the ‘credit cards services’. Therefore, we hold that the demand against the appellant is not sustainable.
9. Moreover, we find that in this case show cause notice has been issued by invoking the extended period of limitation whereas the activity of the appellant was known to the Department much earlier and a show cause notice for the earlier period was also issued to them, in that circumstances, relying on the decision of the Supreme Court in the case of Nizam Sugar Factory vs. Collector of Central Excise, A.P. reported at MANU/SC/8820/2006 : 2006 (197) E.L.T. 465 (S.C.) where as it held that the extended period of limitation is also not invocable, we hold that the demand is highly barred by limitation.”
(Emphasis supplied)
SHOW CAUSE NOTICES
26. The first of the Show Cause Notice (hereinafter referred to as ‘SCN’, for short) is SCN No. 141 of 2013 dated 24.04.2013, which related to the period October, 2007 to June, 2012. The second SCN No. 258 of 2014 is dated 23.09.2014. This SCN relates to the period from July, 2012 to December, 2013. The third SCN No. 25 of 2015 dated 02.03.2015 related to the period January, 2014 to March, 2014. The fourth SCN No. 97 of 2015 dated 11.08.2015, covered the period April, 2014 to March, 2015. Apart from the first SCN, the later SCNs related to the period covered by Section 66B of the Act wherein the Negative List Regime was put in place.
27. Of relevance is the following paragraphs in SCN No. 141 of 2013 dated 23.04.2013:
“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 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 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 pre-contracted rate known as Merchant Discount Rate (MDR) to facilitate the credit card transaction; that acquiring banks submit the transactions settled by Merchant establishments to the assessee (Issuing Bank) through Card Association and in-turn the assessee makes payments to the acquiring banks through Card Association; that Card Association (Master Card, Visa and Diners Club International) acts as a bridge between the assessee (issuing bank) and acquiring banks; that Card Association provides the required network and platform to the issuing banks and acquiring banks for facilitating the cards transactions; that normally acquiring bank submits the transactions (settled by merchants) to the Card Association in a standard file format for onward submission to the assessee (issuing bank); that the standard file format contains details like card number, acquirer reference number, transaction amount, interchange fee, date of transaction, nature of merchant business etc, that based on the transaction details received 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 payment 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.
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4. On being pointed out by audit, the assessee vide letter dated 12.04.2013 stated that the gross amount of consideration received for taxable service under the taxing entry of “Credit Card Services”, has already been subjected to service tax, in the hands of acquiring bank; that the interchange 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 Rs.15,00,00,000/-towards Service Tax vide Challan No. 11046 dated 28/03/2013.
“Para 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 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, proceeding on the basis that the respondent was still receiving interchange fee from the acquiring bank, which was not being subjected to service tax and paragraph 5 of the such Show Cause Notice repeats what has been stated in paragraph 5 of the first Show Cause Notice.
THE CONTENTIONS NOTICED BY THE COMMISSIONER
29. The interchange fee has already been subjected to tax as the entire merchant discount, of which, the interchange fee is a part, has been taxed. The essential preconditions to tax under the Finance Act is that there should be a service, the service provider, service recipient and there should be consideration for the service. It was contended by the respondent that there is no service provided by the assessee to the acquiring bank. The contention was that the acquiring bank deducts the merchant discount and pays the balance to the merchant establishment. The discount so borne by the merchant establishment results in income the beneficiaries being the respondent and the acquiring bank. The amount due to the issuing bank is settled by retention, i.e., the Card Association debits the account of the issuing bank and disperses the same to the acquiring bank. Payment to the Card Association is made separately by the issuing bank and the acquiring bank. There is contractual relationship between the merchant establishment and the acquiring bank. The issuing bank is not engaged in any service to the acquiring bank and the portion of the fee retained by the assessee is not in respect of any service being provided by the assessee to the acquiring bank. There is no service provider and service recipient relation between the issuing bank and acquiring bank. They are participants in the credit card transactions. For the service rendered by the acquiring bank to the merchant establishment, the acquiring bank pays service tax on the gross consideration. The disbursements made between the assessee and acquiring bank are not for any service provided by the assessee to the acquiring bank. The acquiring bank does not hire the assessee to provide any service. The interchange fee is not a consideration for any service. The interchange fee is nothing but a portion of the service tax paid merchant discount and is not a separate consideration paid to the assessee in lieu of any service. The perusal of Section 67 of the Act makes it clear that service tax is applicable 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 the services rendered was liable to subject to service tax. Any attempt to levy service tax would amount to double taxation. There is no escapement of tax. There would be duality of same tax. Transaction in money (relatable to the Show Cause Notices for the period after the negative list was introduced) is not liable to service tax was the contention. There is provision of service only in the first leg of the transaction wherein the acquiring bank pays the merchant establishment after deducting the merchant discount, which is subjected to tax. The subsequent transaction is purely transaction in money and there is no inter se provision of service between the parties. The Show Cause Notices were alleged to be barred by limitation. There is no deliberate intention on the part of the assessee to not disclose correct information. The information about the interchange fee has been disclosed by the acquiring bank. In this case, there is interpretational issue. Likewise, the demand for penalty and interest was opposed. A case for penalty under Section 78 was not made out. There was no mens rea. There is no supression by the respondent. In regard to later Show Cause Notices, there were certain supplementary contentions raised including that interchange fee is only in the nature of interest on loan.
FINDINGS OF THE COMMISSIONER
31. The Commissioner, inter alia, has examined the terms of the relevant extracts of the agreement entered into between the respondent and VISA Worldwide, the Card Association. After referring to various Clauses in the Agreement, the Commissioner finds that a Card Association enters into an agreement with the issuing bank, merchant establishment and acquiring bank, to facilitate the card transactions. The participation by the assessee enables provision of various services to the card holders by the issuing bank. That is, in view of the participation, the issuing bank is enabled to issue credit card and extend services at various merchant establishments, business/Government Entities. Card Association provides the network for facilitation of the transaction flow and levy fee for various services.
32. I may notice the paragraph-8.7:
“8.7. To facilitate the transaction, when a person make a purchase using a card, the following limbs of transactions are involved the Merchant establishment swipes the card of the person who has been issued 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 Associations, the issuing bank is in contractual agreement with the card holder for allowing the various credit limits for purchase of goods or services and return of the credit extended in due course at the appropriate rates of interest. Similarly, in certain cases the acquiring banks are in contractual agreements with the merchant establishments for providing the ‘Point of Sale’ and for crediting, the amount of purchase handled through the P0S. In the above transactions to facilitate the transactions, both the issuing, bank and the acquiring bank pays the card association at the rates agreed upon, the Merchant establishment accepts a discounted amount on the purchase enables by them through the POS of the Acquiring bank; the acquiring banks part with the interchange fee fixed by the contractual agreements with the card Associations to the issuing bank. The issuing bank collects the amount of purchase from the card holder as per the terms and conditions agreed upon by them with the card holder. In the case at hand it is evident that extending the POS to the Merchant establishment and paying, the discounted amount to the ME are covered by a contractual agreement between the acquiring bank and ME on one hand and Acquiring bank, and Card Association on the other hand; similarly the card holder 1s enabled to undertake transactions through the card vide the contractual agreements between the card, holder and the issuing bank on one hand and the issuing bank and Card Association on the other hand. The entire gamut of activities are covered under three compacts i.e. card association with both acquiring bank and issuing bank acquiring bank with ME and issuing bank with card holder. The charges involved in the extension of service’s apart from payment of cost to the Merchant Establishment and repayment to the issuing bank by the card holder are (the MDR retained by the acquiring bank) the charged paid by the acquiring bank and issuing bank to the Card Associations; and the interchange fee retained by the issuing bank. I find that the interchange fees and for facilitating the purchase using the card and not for lending the money for the purchase as claimed by the assessee. The credit card is issued to facilitate credit purchase and in due course the credit extended is received back with appropriate interests from the card holder in line with the contractual agreement 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 card services as it existed upto 30.06.2012, clearly states that the services provided the card associations to the issuing bank is a taxable service and effective from 01.07.2012, activity provided by one person to another for a consideration is a service.”
33. As regards the case of the respondent that service tax is paid by the acquiring bank on the MDR, it is stated that no proof has been produced by the respondent. To quote:
“The interchange fee and the MDR are not the same amount. The assessee has stated that service tax is being paid by the Acquiring bank on the MDR but has not furnished any proof to that extent. Moreover, the interchange fee is the consideration given to the issuing bank for validating the e-transaction and the MDR is the consideration for the Acquiring bank for setting the Merchant Establishment.”
34. Still further, the Commissioner went on to find, in regard to the question, whether there was suppression by the respondent relating to non-payment of service tax on interchange fee. It was found that the respondent had received interchange fee. It was further found that when the legal provision is clear and explicit, the act of not paying service tax revealed a positive act on the part of the respondent. Even if they were under the belief that the charges are not liable to service tax, they should have approached the Department with the details so that the Department could have examined the correctness of the claim. With the introduction of self-assessment, there being no ambiguity in the provisions of Statue, the onus of making proper assessment rests with the assessee under Section 70. The period of limitation would commence from the date of the knowledge of the Department. Reliance was placed on Judgment of this Court in Commissioner of Central Excise, Vishakhapatnam v. Mehta and Company3. Penalty was also found justified. Finally, the Commissioner proceeded to confirm the demand for service tax, interest under Section 75, penalty under Section 78 and also the penalty of Rs. 10,000/- under Section 77(2).
THE IMPUGNED ORDERS OF THE TRIBUNAL
35. The Tribunal, in Order dated 16.11.2018, passed a reasoned Order, which is impugned in Civil Appeal No. 8228 of 2019.
36. The said Order came to be followed by the Tribunal by passing the Order dated 20.11.2019, which is impugned in Civil Appeal No. 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 and the Order of the Commissioner was set aside.
THE CONTENTIONS OF THE PARTIES
39. Shri Balbir Singh, learned Solicitor General, would, after adverting to the salient features of the credit card transaction, contend that the respondent, as issuing bank, is liable to pay tax on the interchange fee. He drew our attention to the definition as contained in Section 65(33a) of the Act. He emphasised that the definition clause devises the employment of the word ‘includes’. He also took us to the Orders passed by the Tribunal in Standard Chartered Bank (supra) and ABN Ambro (supra). After the unravelling of the different dimensions of a credit card transaction made exigible to service tax expressly, he would contend that there was no scope for the contention of the respondent that there was no service rendered by it. Both for the period prior to 01.07.2012 and for the period thereafter, it was crystal clear that the respondent was rendering and continue to render service within the meaning of the Act and it is impossible to contend that the interchange fee is not liable to be taxed in the hands of the respondent. The interchange fee is the consideration that accrues to the issuing bank for verification, facilitation and extending the purchase value in line with the contractual agreement, the issuing bank has with the Card Association and also for taking the risk of collection from the card holder. Interchange fee is, according to the appellant, consideration received as a result of contractual agreements with the Card Association to facilitate purchase of goods or services. The contention of the respondent that the activity is to be treated as a transaction in money, is disputed. The issuing bank is debited the purchase amount less interchange fee. The interchange fee is the service charge for allowing the transaction. The debited amount is a transaction in money. The service charge is demanded only on the interchange fee and not on the purchase amount. The Order of the Tribunal in ABN Ambro Bank (supra), cannot be relied upon being per incurium, as the same was rendered without appreciating the inclusive definition of ‘credit card service’ under Section 65(33a) read with Section 65(105)(zzzw) and Section 66B(44) of the Act.
40. The complaint of the respondent that there is double taxation, is disputed. Reliance is placed on the Judgment of this Court in Association of Leasing & Financial Service Companies v. Union of India and others4, 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 credit card service. No service tax has been paid by the respondent on the amount received as interchange service towards rendering taxable service. The fact of payment of service tax by acquiring bank does not absolve the issuing bank from payment of tax on the consideration received by it. There is no double taxation. It is also contended that without prejudice to the said contention the respondent has not produced evidence to establish payment of tax by the acquiring bank on the interchange fee. It is also contended that the extended period limitation has been rightly invoked in respect of the SCN dated 24.03.2013. There was no basis for the respondent to form a bonafide belief that their activities are not liable to service tax. There was no Order of the Tribunal which could have persuaded the respondent to think that it was not liable to pay tax. The definition in Section 65(33a) is unambiguous. No clarification was sought from the Department. Under the Regime of Self Assessment, the onus is only on the assessee to assess the tax liability honestly and as per law. It was only due to the verification of the accounts during audit, that the evasion of respondent, came to light. During the investigation also, it was contended by the respondent that the service tax had been discharged by the acquiring bank but they did not submit any proof. The present was, therefore, a case of fraud, wilful misstatement and suppression.
41. The respondent, on the other hand, contended that in view of there being no appeal against the Order of the Tribunal in ABN Ambro Bank (supra), there could be no pick and choose and the present Appeals are not maintainable. It is further contended that the Appeals are also not maintainable for the reason that the Commissioner had deviated from the Show Cause Notices and arrived at findings on matters which were contrary to the case set up in the Show Cause Notice. It goes to two aspects. In the Show Cause Notice, it is stated, as already noticed, that even if the acquiring bank has paid tax, that would not absolve the respondent from its liability to pay tax. In other words, Show Cause Notice is based on acceptance of payment of service tax on the entire MDR, which includes the interchange fee, but in the impugned Order, the finding is that the respondent has not proved such payment. Secondly, it is contended that whereas in the Show Cause 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. 5. The nature of the credit card transaction is highlighted. It is pointed out that the acquiring banks incur expenditure on installing swiping machines at the different merchant establishments. They are also responsible for ensuring payment to the service recipient within two days of transaction (T+2) as per the mandate of the Reserve Bank of India. Regarding the role of the issuing bank, it is stated that when the credit card is swiped by the card holder, on approval of the transaction, the entire chain of activities, is triggered. In the Table given, which consists of a transaction worth Rs.100/-, the card network debits the account of the respondent to the extent of Rs.98/-. This amount is remitted to the acquiring bank. Rs.2/- remains to the credit of the issuing bank and this sum is called interchange fee. This is the income of the issuing bank. The acquiring bank receives Rs.98/-. It remits Rs.94.30 to the merchant establishment. The acquiring bank retains its service consideration of Rs.3/-. At the rate of 14 per cent, 70 paise is payable as service tax on the total MDR of Rs.5/-. It is the case of the respondent that when the acquiring bank has paid the said amount of service tax, the respondent cannot be called upon to again pay tax. Millions of transactions are processed every day. There is minimum human intervention as it is technology, which facilitates it. The same bank can function as issuing bank and acquiring bank. For all transactions, where Citi Bank has functioned as acquiring bank, it has retained Rs.3/- from the merchant establishment as its fee but it has remitted 70 paise to Service tax authority. The service tax is collected from the merchant establishment and remitted to the Department.
42. Under Section 67(1) of the Act, the respondent contends, the gross amount, which is charged by the service provider, will be Rs.5/-. In the present case, the expression, ‘service provider’ will include both the issuing bank and the acquiring bank. The gross amount will be Rs.5/-, which includes Rs.2/-payable to the issuing bank and Rs.3/-, which is payable to the acquiring bank. Reliance is placed on Circular No. 51/13/2002 dated 07.01.2003 and Instruction bearing F.No. 150/1/94-CX4 dated 02.05.1996 issued by CBEC. Reliance is also placed on Department letter F. No. 341/18/2004-TRU(Pt.) dated 17.12.2004. It is submitted, on the basis of the analogy drawn, that the interchange fee cannot be taxed once again, as, under Section 65(33a)(iii), the service has been provided by both the issuing bank and the acquiring bank and charged accordingly. For the period after 01.07.2012, the transition to the Negative List did not mean that the credit card services could be split up into individual components and taxed again. The credit card services continue to be the taxable service. Section 67(1)(i) continued to levy service tax on the gross levy, i.e., the MDR. There is no averment in the Show Cause Notice, calling upon Citi Bank to submit proof that the acquiring bank had paid the applicable service tax. The finding that the respondent has not proved the payment by the acquiring 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 Rs.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 Rs.5/-. It pays service tax on Rs.5/-. If the bank is again asked to pay separately on Rs.2/-, there would clearly be double taxation. The Department could have easily cross-checked by way of a sample check. Service tax is a passthrough levy. In other words, it can be used as an input tax credit for payment of output tax by the recipient. The credit card service is an input service as far as merchant establishments are concerned. If the service tax on interchange fee is demanded once again, there is no mechanism to take the service tax credit, even though, it has to be treated as a service provided by the issuing bank. No specific invoice is issued by the issuing bank either on the acquiring bank or on the merchant establishment, since the issuing bank does not know the identity of the merchant establishment or the acquiring bank. Neither the Act nor the Rules contemplate multiple payments. Service tax is payable only once on the gross service consideration. It is contended that the extended period of limitation for the period 2007-2015 could not have been invoked. The issue is interpretational. There was no suppression when facts are known to both sides. Reliance is placed on Ballarpur Industries Ltd. (supra), and Larsen & Toubro Ltd. v. Commissioner of Central Excise, Pune II6.
ANALYSIS
THE NATURE OF THE CREDIT CARD TRANSACTION
43. In the Counter Affidavit, filed on behalf of the respondent in Civil Appeal No. 8228 of 2019, the stand of the respondent in regard to the nature of the transaction appears to be as follows:
“The manner in which a credit card purchase (transaction) occurs is diagrammatically described below:
All above transactions are powered by a technological platform and take place in a matter of seconds.
9. The manner of settlement of credit card purchase transactions, i.e., money flow and service tax charged, is as follows:
