No Separate Service Tax on Interchange Fee When Tax Paid on MDR: SC

Commissioner of GST And Central Excise Vs Citibank N.A. (Supreme Court of India)

In a significant ruling, the Supreme Court of India addressed the service tax obligations concerning the Merchant Discount Rate (MDR) and interchange fees in the case of Commissioner of GST and Central Excise vs. Citibank N.A. The court upheld the position that service tax is only payable on the MDR and not separately on the interchange fee charged between the acquiring and issuing banks.

The case originated from the contention of the Revenue that both the acquiring bank and issuing bank had distinct service tax obligations: the acquiring bank was expected to pay service tax on the MDR after deducting the interchange fee, while the issuing bank should pay service tax on the interchange fee it receives. This assertion was challenged by Citibank, leading to the present appeal.

Justice S. Ravindra Bhat, who delivered the judgment, highlighted that the interpretation of Section 65(33a) of the Finance Act, 1994, was essential for understanding the tax implications. This section encompasses various services rendered by both acquiring and issuing banks in the context of credit card transactions. The court noted that the MDR encompasses fees charged by both banks, implying that service tax should only be levied once on this total amount.