2019 (3) TMI 593 – AUTHORITY FOR ADVANCE RULING, MAHARASHTRA – TMI – Maintainability of Advance Ruling application – Levy of GST – Merchant Discount Rate received by the issuing Bank as 'Interchange Fee' – Held that:- Merchant Discount Rate is the rate charged by Acquiring bank from Merchant on every card transaction. This MDR is as per agreement between Acquiring Bank and Merchant Establishment. From a perusal of transaction it is clear that applicant is neither a supplier nor a recipient and the questions raised is not in relation to the supply of goods or services or both, being undertaken or proposed to be undertaken by the applicant and as such by virtue of section 95 the applicant cannot make an application before this authority.
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Why different practice prevails by the Network in the industry? – Held that:- The question is not on matters or questions specified in Section 97(2) of the Act and as such is inadmissible under section 97 (2) of the Act.
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The present applicat
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THE APPLICANT 1) Statement of relevant facts having a bearing on the questions raised- 1) "The Mobile Wallet Private Limited (hereunder referred as Applicant) registered with the Registrar of Companies Vide Registration No. U67190MH2015PTC267015, having a corporate office at 3rd Floor, Tower 3, Equinox Business Park, LBS Marg, Kurla (West), Mumbai – 400070. 2) The applicant has obtained registration and holding valid registration certificate issued under Central Goods and Services Tax Act, 2017. 3) The applicant is in the business of issuance and operation of Pre-paid Payment instruments as per RBI guidelines. Pre-paid Payment Instrument includes mobile wallet and Pre-paid Card. 4) The applicant company has entered into an agreement dated 16th Jan 2018 with the Federal Bank Ltd having a registered Office at Federal Towers, Aluva-683101, Kerala. Applicant is issuing and operating Pre-paid Payment instruments as Business Correspondent (BC) of Federal Bank. As part of BC arrangement,
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z. the card holder 3. Network: Provides the payment infrastructure and issuing/ acquiring banks are its members (VISA/ MasterCard/ Rupay etc.) 4. Merchant Establishment: The vendor of goods or service who accepts the card in lieu of cash payment from the card holder. 5. Acquiring bank. Provides payment processing services to Merchant Establishments by entering into a separate agreement with the merchant and placing a swipe machine at the merchant outlet or provide Payment Gateway services for online transactions. 6. Business Correspondent (BC): The Applicant is issuing and operating Pre-paid Payment instruments as Business Correspondent (BC) of Federal Bank. As part of BC arrangements, Appellant has launched Co-branded Pre-paid Cards in India with Federal Bank powered by MasterCard. Interchange Fees is the subject matter of the dispute is earned by Issuing Bank: The flow of business transaction can be explained in a detail as under 1) The card holder does a purchase at the merchant est
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he card holder for purchase of goods or services. Such PG services are provided by the 'Acquiring Bank' to the Merchant Establishments which enables validation and acceptance of payment by Debit/Credit/ Pre-Paid card. 2. The moment card holder swipes the card or enter Card details in PG at Merchant Establishment with amount to be debited, information is transmitted to the Issuing Bank with the help of settlement platform of the Network. The information regarding authenticity of the card holder and amount confirmation is then sent back to the Merchant Establishment by the Network 3. The VISA/ MasterCard/Rupay/AMEX network generates reports for merchant settlement and sends the same to concerned Acquiring Bank who pays the merchant after deducting MDR and applicable GST on MDR. 4. A settlement report is sent to the Issuing Bank for reimbursement to the Acquiring bank by the Network (VISA/ MasterCard / Rupay / AMEX) 5.Out of MDR earned by the Acquiring bank in (3) above, Interchan
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of Issuing Bank Acquiring Bank share part of this 'Merchant Fee' with issuing bank as Interchange Fee. 3) Issuing Bank collects the payment for the purchase transaction from the card holder and makes the payment to the Acquiring Bank after deducting part of the Merchant Service Fee charged by Acquiring Bank in the form of Interchange Fee. 4) Further, Issuing bank pays pre-agreed fees to the Network and discharge the GST tax liability on the same under reverse charge mechanism. 5. The Merchant Discount Fee which is the gross amount received by acquiring bank from a Merchant Establishment towards the support service is subjected to GST @ 18% falling under the category of financial services. Let us elaborate with an Example: Transaction Amount: – ₹ 10,000 online MDR payable by Merchant to Acquirer – 1.80% plus GST Interchange Rate to issuing bank: – 1.60% on MASTER Pre-paid Card for online transaction Interchange Fee Sharing- 85%: 15% between Applicant TMW and Issuing Bank
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tween Business Correspondent (BC) and the Issuing bank in the agreed ratio as in this case it is 85:15 (85% by BC and 15% by Issuing bank). The BC again pays GST on the income value of ₹ 115.26 (85% of ₹ 135.60) @18% raised in favor of Issuing bank. In this case Merchant Discount Rate amount (MDR) was collected from the merchant establishment by the Acquiring Bank (RS.180) and GST is paid on the full MDR of ₹ 180 @ 18% by Acquiring Bank i.e. ₹ 32.40. Now the share of Issuing Bank in the form interchange fee of ₹ 160 also taxed @ 18% thou it is a part of ₹ 180 which had already suffered GST. Here the basic concept of GST is violated as the seamless flow of credit is obstructed. Acquiring bank will not get any credit of the amount of GST paid by the Issuing bank, as the issuing bank is paying GST on Reverse Charge Mechanism (RCM). In this whole simple process of digital payment of MDR of ₹ 180, Gov. collect tax as under at different levels. CGST
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cquiring bank, so Acquiring bank can take a credit of 28.80 against his outward supply liability of ₹ 32.40, resulting in net outflow of ₹ 3.60 MASTER/VISA CASE ₹ 32.40 GST (18% of 180) is charged to the Merchant Establishment by the Acquiring bank. Issuing bank will pay GST of ₹ 24.40 in Reverse charge on ₹ 160 and Acquiring bank will not be able to take a credit of ₹ 24.40 against his outward supply liability of ₹ 32.40, resulting in outflow of ₹ 32.40. ANNEXURE-B 3) [Statement containing the applicant's interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s) (i.e. applicant's view point and submissions on issues on which the advance ruling is sought) Submission: Section 2(30) of Central Goods and Services Act defines Composite supply as "Composite Supply" means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or bot
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the predominant component in the total price of the supply nor guided by the predominant material involved. The test of predominance must be gathered from the 'predominant object' for which the recipient approached the supplier; The method of billing, assignment of separate prices etc. may not be relevant. In other words, whether separate prices are charged for each of the components of supply or a single consolidated price charged, the identity of each of the components of supply must be unmistakably distinct in the arrangement. In the erstwhile service tax Era, it is a composite service and should not be broken into separate service. The role of the issuing bank in the service provided by the acquiring bank to the merchant establishment is part of a single composite service falling under clause (iii) of Section 65 (33a) and it cannot be broken up into its components and classified as separate service for classification. This is a well-accepted principle of classification. Th
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us supply of services from Merchant Establishment/ Acquiring bank/ Issuing bank/ network provided to the card holder is a single Composite Supply. These supply are not provided as independent activities but are the means for successful provision of the principal supply, namely, the swiping of the card for the purchase of goods or services. The contention that a single composite supply should not be broken into its components and classified as separate supply is a well-accepted principle. Therefore, it is a settled position of law that interchange fee earned by the issuing bank' forming integral part of supply of service of 'acquiring bank' to the merchant establishment, and therefore should not be faxed again with 18% GST. In the present circumstances, the modus operadi goes against the basic principles of GST of seamless flow of credit and double taxation on the same transaction. In this instant case Acquiring bank is paying GST to Government which he is collected from mer
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97 and Section 98 of the GST Act. As per section 95, the term 'advance ruling' means a decision provided by this authority to the applicant on matters or questions specified in subsection 2 of Section 97, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. For the sake of better understanding Section 97 is reproduced as below: Section 97: (1) an applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought. (2) The question on which the advance ruling is sought under this Act, shall be in respect of,- (a) classification of any goods or services or both; (b) applicability of a notification issued under the provisions of this Act; (c) determination of time and value of supply of goods or services or both; (d) admissibility of input tax credit of tax pai
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Rate is the rate charged by Acquiring bank from Merchant on every card transaction. This MDR is as per agreement between Acquiring Bank and Merchant Establishment. From a perusal of transaction it is clear that applicant is neither a supplier nor a recipient and the questions raised is not in relation to the supply of goods or services or both, being undertaken or proposed to be undertaken by the applicant and as such by virtue of section 95 the applicant cannot make an application before this authority. With respect to question No. 2 above, we clearly find that the question is not on matters or questions specified in Section 97(2) of the Act and as such is inadmissible under section 97 (2) of the Act. Hence in view of the above discussions we find that the present application seeking ruling on questions stated hereinabove is not maintainable and liable for rejection. 06. In view of the extensive deliberations as held hereinabove, we pass an order as follows ORDER (Under section 98 of
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