M/s. CITI Bank N.A. Versus Commissioner of GST & Central Excise Chennai North
Service Tax
2019 (2) TMI 14 – CESTAT CHENNAI – (2024) 132 GSTR 140
CESTAT CHENNAI – AT
Dated:- 16-11-2018
ST/Misc/40776/2017 & ST/40923/2017 – Final Order No. 42902/2018
Service Tax
Ms. Sulekha Beevi C.S., Member (Judicial) And Shri Madhu Mohan Damodhar, Member (Technical)
Shri N. Venkataraman, Senior Advocate for Ms. Sweta Rajan, Shri Ranjeet Mehtani & Shri Karthi Visalakshi, Advocates for the Appellants
Shri K. Veerabhadra Reddy, ADC (AR) for the Respondent
ORDER
Per Bench
1.1 The facts of the case narrated in paragraphs 2 to 2.2 of the impugned order is as under:-
“During the course of audit of accounts of the assessee by Service Tax Internal Audit Group of Service Tax Commissionerate, Chennai, it was noticed that the assessee was issuing credit cards to its customers; that credit card transactions typically involve two banks – an issuing bank and an acquiring bank; that issuing
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ub 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 st
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ing 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 28.3.2013″.
1.2 Four show cause notices were issued to the appellants covering the period from October 2007 to March 2015 alleging that service tax liability is required to be discharged on these fees under taxing entry for “Credit Car
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ships, 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 Department:
a) service provided by the Issuing Bank to the Card Holder is levied to service tax
b) service provided by the Acquiring Bank to the Merchant Establishment is service tax paid
c) services provided by the Card Network to the Acquiring Bank is tax paid, and
d) services provided by the Card Network to the Issuing Bank is charged to tax.
(iii) The payment by Merchant Establishments to the Acquiring Bank known as Merchant Discount Fee includes a portion (known as Interchange Fees) that is shared by the Acquiring Bank with the Issuing Bank and the case of the Respondent-Department is that Issuing Bank receives Interchange Fees for services rendered to CN and which is not taxed.
(iv) In a typical transaction, services are provided by one person to the next in the supply chain and consideration is received for
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ly be collected at the Acquiring Bank's end through his client, and in no other way, in the process of settlement which is based on a technological platform.
(vi) If the collection of fees (of the Acquiring Bank and the Issuing Bank) was broken into two parts and so changed, the Issuing Bank's fee charged to the Card Holder (its customer) may have borne the form and shape of interest and not suffered service tax. Numerically, as a result of the settlement mechanism presently followed, the entire transaction has suffered service tax. The Interchange Fees that is earned by the Issuing Bank is taxed as part of and in the hands of the Acquiring Bank i.e. at first point. Since service tax is already levied on the Interchange Fees, the same cannot once again be subjected to service tax in the hands of the Issuing Bank.
(vii) The adjudicating authority has relied upon the decision of the Larger Bench of the Tribunal in Standard Chartered Bank Vs. Commissioner of Service Tax, Mumbai – I – 20
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was that there was a service by the Issuing Bank to the Acquiring Bank, therefore, whether or not Interchange Fee was consideration for service was not in question before the Hon'ble Tribunal. This is contrarian to the submission of the Appellant in the present case and finding in the OIO.
c. It was not the submission of the assessees (in that case) that Interchange Fee was not consideration for services, therefore, the Hon'ble Tribunal did not have the occasion to decide whether or not the activity of the Issuing Bank was a service and covered by the taxing entry for CCS. If a particular issue has been decided in a judicial precedent wherein a specific argument was not advanced / raised and hence, the same was not discussed, then a subsequent matter where such argument is raised cannot be considered to be on the same footing as the matter and findings in the said judicial precedent:
* Mittal Engineering Works (P) Ltd vs. CCE, Meerut [1996 (88) E.L.T. 622 (S.C.)]
* H.H. Maharajadh
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Fee component with the issuing bank, which fact has been clearly brought forth and informed in the filing with the CBEC on various dates and way back in 2006.
(x) The United States Tax Court in the case of Capital One Financial Corporation & Subsidiaries Vs. Commissioner of Internal Revenue as reported in 133 T.C. No. 6, involving similar service has held that “interchange is not a fee for any service other than the lending money to cardholders, the income from which is generally treated as interest; interchange compensates banks for the costs of lending”. The US Tax Court has concluded “that interchange is not a fee for any service other than lending money to cardholders, income from which is generally treated as interest. The petitioners have shown that interchange fees are a form of interest compensating Capital One for the costs of lending money”.
(xi) The impugned order traverses beyond the scope of the show cause notice. The demand in the show cause notices is on the premise th
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re of the entire issue, and in fact, the clarifications were being awaited by IBA of which the appellant is a member, the allegation of suppression, fraud, mis-statement or intention to evade payment of tax could not be foisted on the appellant. Secondly, the entire period of limitation could not have been invoked in the impugned show cause notice. Hence on these grounds and on the ground of limitation also, the entire proceedings may be set aside.
3.1 On the other hand, ld. AR Shri K. Veerabhadra Reddy supported the findings in the impugned order. The Credit Card Services was carved out of Banking and Other Financial Services and made separate taxable category with effect from 1.5.2006. He much relied upon the decision of Larger Bench in the case of Standard Chartered Bank Ltd. (supra). He referred to para 41 of the judgment and argued that the Larger Bench had also analyzed the issue of interchange fee received as settlement services and observed that such services have brought with
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/ terms & conditions. Service fees are charged to service tax.
b) Credit Card holders (CH) – The Card Holder is the customer to whom the Issuing Bank issues a credit card. The credit card evidences a potential line of credit established by the Issuing Bank using which the Card Holder may purchase goods or services at any of the Merchant Establishments.
c) Acquiring Bank (AB) – The Acquiring Bank is a bank which recruits, screens, and accepts Merchant Establishments into a Card Network's network. They provide a Point of Sale (hereinafter referred to as 'POS') machines to Merchant Establishments which enable Merchant Establishments to validate and accept credit card payments. The Acquiring Bank processes credit card transactions for Merchant Establishments within the respective Card Network and also operates per the respective Network's Operating Regulations. Any service fees (typically Merchant Discount Fee / MDF) from Merchant Establishment is fully charged to service tax.
d) Merch
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rd transaction. The Card Network prescribes the Operating Rules and the 'Interchange Fees‟ that IBs earn besides manage interchange flow between banks. The CN in most cases is located outside India. The charges levied by CN, whether to the Acquiring Bank or Issuing Bank suffer service tax under the reverse charge mechanism.
5.3 The transaction processes has been capsulated in following flow charts in the impugned order, which is as under:-
5.4 In the flow charts given above, for transaction of Rs. 100/- shown, the interchange fee of Rs. 2/- is the amount which is under dispute in these appeals. Revenue insists that it would fall within the ambit of the service tax liability under Credit Card Services.
5.5 Appellant, however, contests the demand on the following counts:-
* No service is rendered
* There is no service provider-service recipient relationship
* There is no consideration payable by the service recipient to the service provider
* Interchanging fees is in
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aken a stand that no proof has been furnished to that extent. Moreover, the interchange fee is the consideration given to issuing bank for validating the transaction and the MDR is the consideration for the acquiring bank for settling the merchant establishment.
5.8 We further find that although the appellant in the course of adjudication proceedings had contended that the decision of the Larger Bench of the Tribunal in Standard Chartered Bank (supra) is not applicable to the present case, no discussion or counter response to that assertion has been made by the adjudicating authority in the impugned order. Per contra, during the hearing, the ld. AR made arguments that the said Larger Bench decision was very much applicable to the facts of the present case also. However, after careful perusal of the decision, we find ourselves in agreement with the ld. Senior Advocate. The issue in question in the Standard Chartered Bank case was whether interchange fee received by the issuing bank fro
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e Tribunal in ABN Amro Bank (supra), the case law of Standard Chartered Bank had been agitated before the Bench. Further, on going through Standard Chartered Bank decision, we find that the primary issue that was dealt with by the Larger Bench of the Tribunal was in respect of services provided by issuing bank to acquiring bank and acquiring bank to merchant establishment. The Tribunal had held that these were distinct services and outside the purview of Credit Card Services prior to 1.5.2006. Of course, the Larger Bench had held that interpretation in respect of the reference whether merchant establishment discount can be said to be “received in relation” to credit card services in particular transaction wherein bank receiving discount may not have received that and the credit card delivered.
5.10 Viewed in this light, notwithstanding the contentions of the ld. AR, we find that the Standard Chartered Bank decision of Larger Bench supra does not help the case of the Revenue and on the
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(8) G.S.T.L. 225 (All.).
7. Moreover, we have gone through the definition as under Section 65(33A) Clause (iii) herein is reproduced below:- “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.”
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'. 5 APPEAL No. ST/1921/2012-CU[DB] Therefore, we hold that the demand against the appellant is not sustainable.”
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