The Supreme Court has delivered a split verdict on a petition where the appeals are maintained under provisions of the Central Excise Act, 1944 and the Finance Act, 1994 where they are directed against the orders by the Excise, Customs and Service Tax Appellate Tribunal, Chennai bench (The Tribunal) for the issue that whether the tax on interchange fee is payable by the respondents/bank or not.
The division bench of Justices K.M. Joseph and S. Ravindra Bhat took differing views on banks charging an interchange fee for credit card transaction and whether the fee charged is subject to service tax or not. Justice Joseph allowed the plea whereas Justice Bhat dismissed the same.
The Principal Commissioner Service Tax, Chennai, found that the respondent/bank is liable to pay service tax, penalty and interest on the amount of the “interchange fee” which is received by the bank/Respondent, the said findings of the Principal Commissioner Service Tax, Chennai was set aside in the final order by the Tribunal.
Justice Joseph opined that the service fee is charged by banks issuing the cards and hence the fee is subject to service tax. The judge observed that the concept of value added tax does not mean that if tax is already paid by the acquiring bank on the amount of interchange fee charged for services provided by the respondent as issuing bank, then the respondent bank should be called upon to pay service tax all over again because it would constitute double taxation for the same transaction.
Justice Bhat agreed to the fact that the bank issuing the cards was providing service, but unlike Justice Joseph felt the services provided by the card-issuing bank and the bank acquiring the service cannot be set apart and is to viewed as one single service rendered to the public.
Justice Bhat noted that 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 the 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,” Justice Bhat remarked.
Justice Joseph noted that Section 65(105)(ZZZW) provides for any service rendered or to be rendered to any person by the other person which is in relation to debit/credit card or any other card used for the purpose of making payment is any manner then it is a taxable service.
“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,”
-he added further.
The Principal Commissioner Service Tax, Chennai, also observed that 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 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.