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Commissioner of GST and Central Excise v. Citi Bank N.A.

Finance Act, 1994 Service Tax – Credit Card services Statutory Framework for Service Tax Who is Liable to Pay Service Tax and File Return Effect of Service Tax being a Value Added Tax.

K.M. JOSEPH, J.

1. The issuing bank was providing service.

2. For the period prior to 01.07.2012, the service of the issuing bank squarely fell within Section 65(33a)(iii) of the Act.

3. Interchange fee cannot be treated as interest and, therefore, taxable under the Act.

4. 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.

5. 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.

6. 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).

7. The 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.

8. 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 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;

9. 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.

10. 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. The respondent should be provided an opportunity to establish that the acquiring bank has discharged the tax liability in regard to interchange fee.

S. RAVINDRA BHAT; J. (Dissenting)

On Conclusion 1 : 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).

On Conclusions 2, 3, and 4: 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.

On Conclusion 6: 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.

On Conclusion 5, 7, 10: 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.