# COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A

- **Citation:** [2021] 13 S.C.R. 424
- **Court:** Supreme Court of India
- **Decided:** 2021-12-09
- **Case number:** Civil Appeal No. 8228 of 2019
- **Bench:** K. M. Joseph, S. Ravindra Bhat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-gst-and-central-excise-v-m-s-citi-bank-n-a-35269
- **Pages:** 142

## Headnote

Central Excise Act, 1944 - ss. 35L(1)(b) - Finance Act, 1994
- 65B(44), 65(33a), 67, 68 - Service Tax on interchange Fee - An
internal audit group of the Service Tax Commissionerate found that
respondent-bank was receiving interchange fee, which formed part
of the gross amount billed to the customer - Show Cause Notices
were issued to the Respondent - Respondent contended that it is
not performing any service so as to render it exigible to service tax
on the interchange service - Principal Commissioner found that
respondent-bank was liable to pay service tax, penalty and interest
on the amount of "interchange fee" received by it - The Tribunal
set aside the order passed by the Principal Commissioner - On
appeal, held: Per K. M. Joseph, J.,: The respondent, as issuing
bank, was liable to pay service tax, u/s.68(1), being the service
provider - Being liable to pay tax u/s.68(1), it was also liable to file
the return including the amount of interchange fee - The measure
of tax, which is found in s.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, would be the
value of service, for the purpose of s.67(1) - Therefore, respondentbank was liable to include interchange fee and file return and pay
tax on the same - It is also clear that Respondent, as issuing bank,
provides service within the meaning of s.65(33a)(iii) - Respondent
is paid Rs.2 as interchange fee - Interchange fee, therefore, is
exigible to service tax - Per S. Ravindra Bhat, J.
(dissenting):Respondent-bank, 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 - Having
characterized 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
[2021] 13 S.C.R. 424
424
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includes the interchange fee that is retained by the issuing bank)
taxable for single service rendered by both the acquiring and issuing
bank (respondent) cannot be called upon to pay service tax again
as this would result in double taxation.
Referring the matter to Appropriate Bench, the Court
HELD: 1. Per K. M. JOSEPH, J. : It is clear that
interchange fee is earned by the respondent as issuing bank. It
may be true that the respondent may also be engaged in the credit
card transaction both in its capacity as issuing bank and an
acquiring bank. In such an event, the aggregate sum earned for
the service rendered in its capacity as issuing bank and its capacity
as acquiring bank, would become the measure of tax or, in other
words, value of the taxable service but legally they are for
separate services as the nature of service rendered by the issuing
bank is different from the service rendered by the acquiring bank.
The fee is also different. Undoubtedly, it would be dependant on
the terms of the contracts in question. In a scenario, however,
where the issuing bank and the acquiring bank are different, as
is the case in the present case, it would be a case where both the
issuing bank and the acquiring bank are rendering separate
services as part of the credit card transaction. Indisputably, the
interchange fee is no gift. Such a fee is not the subject matter of
the service tax, falling under the transaction between the issuing
bank and the card holder relatable to Clause (i) of Section 65(33a).
The nature of the entire transaction, having been laid bare from
the moment the card gets swiped in a transaction, till the amount
is paid to the merchant establishment, there is, indeed, service
performed by the issuing bank in relation to the settlement of
the amount transacted through the card. As already noticed, the
issuing bank, as part of its agreement with the card association
and the acquiring bank,

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[2021] 13 S.C.R.
COMMISSIONER OF GST AND CENTRAL EXCISE
v.
M/s CITI BANK N. A.
(Civil Appeal No. 8228 of 2019)
December 9, 2021
[K. M. JOSEPH AND S. RAVINDRA BHAT, JJ.]
Central Excise Act, 1944 - ss. 35L(1)(b) - Finance Act, 1994
- 65B(44), 65(33a), 67, 68 - Service Tax on interchange Fee - An
internal audit group of the Service Tax Commissionerate found that
respondent-bank was receiving interchange fee, which formed part
of the gross amount billed to the customer - Show Cause Notices
were issued to the Respondent - Respondent contended that it is
not performing any service so as to render it exigible to service tax
on the interchange service - Principal Commissioner found that
respondent-bank was liable to pay service tax, penalty and interest
on the amount of "interchange fee" received by it - The Tribunal
set aside the order passed by the Principal Commissioner - On
appeal, held: Per K. M. Joseph, J.,: The respondent, as issuing
bank, was liable to pay service tax, u/s.68(1), being the service
provider - Being liable to pay tax u/s.68(1), it was also liable to file
the return including the amount of interchange fee - The measure
of tax, which is found in s.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, would be the
value of service, for the purpose of s.67(1) - Therefore, respondentbank was liable to include interchange fee and file return and pay
tax on the same - It is also clear that Respondent, as issuing bank,
provides service within the meaning of s.65(33a)(iii) - Respondent
is paid Rs.2 as interchange fee - Interchange fee, therefore, is
exigible to service tax - Per S. Ravindra Bhat, J.
(dissenting):Respondent-bank, 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 - Having
characterized 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
[2021] 13 S.C.R. 424
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includes the interchange fee that is retained by the issuing bank)
taxable for single service rendered by both the acquiring and issuing
bank (respondent) cannot be called upon to pay service tax again
as this would result in double taxation.
Referring the matter to Appropriate Bench, the Court
HELD: 1. Per K. M. JOSEPH, J. : It is clear that
interchange fee is earned by the respondent as issuing bank. It
may be true that the respondent may also be engaged in the credit
card transaction both in its capacity as issuing bank and an
acquiring bank. In such an event, the aggregate sum earned for
the service rendered in its capacity as issuing bank and its capacity
as acquiring bank, would become the measure of tax or, in other
words, value of the taxable service but legally they are for
separate services as the nature of service rendered by the issuing
bank is different from the service rendered by the acquiring bank.
The fee is also different. Undoubtedly, it would be dependant on
the terms of the contracts in question. In a scenario, however,
where the issuing bank and the acquiring bank are different, as
is the case in the present case, it would be a case where both the
issuing bank and the acquiring bank are rendering separate
services as part of the credit card transaction. Indisputably, the
interchange fee is no gift. Such a fee is not the subject matter of
the service tax, falling under the transaction between the issuing
bank and the card holder relatable to Clause (i) of Section 65(33a).
The nature of the entire transaction, having been laid bare from
the moment the card gets swiped in a transaction, till the amount
is paid to the merchant establishment, there is, indeed, service
performed by the issuing bank in relation to the settlement of
the amount transacted through the card. As already noticed, the
issuing bank, as part of its agreement with the card association
and the acquiring bank, which is also under agreement with the
card association, is engaged in the unique activity of being on the
electronic platform hosted by the card association, which,
admittedly, fixes the interchange fee and the amount to be earned
by the issuing bank and acquiring bank and, under the auspices
of which, transaction data, in millions, is processed by the issuing
bank and it is only with the approval of the issuing bank that the
COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI
BANK N. A.
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merchant bank permits the purchase using the card. This is on
the clear understanding that the amount will be paid by appropriate
debit and credit in the accounts maintained, both by the issuing
bank and acquiring bank. Rs.2/-, in the example given, is, however,
retained by the issuing bank and it is Rs.98/- which alone gets
credited in the account of the acquiring bank. The actual payment
is finally received by the merchant establishment on the agreed
date on settling the account by the acquiring bank paying the
amount, after deducting Rs. 5/- as amount of merchant discount.
This amount of merchant discount is made up of Rs.2/- earned by
the issuing bank. [Paras 54 & 55][485-E-H; 486-A-E]
2. It is inconceivable that without the role played by the
issuing bank, which tantamounts to activity and, therefore, service,
the very credit card transaction, would become possible. It is
also clear that credit card system is fundamentally based on the
issuing bank, undertaking the risk. Rs.98/-, in a transaction of
Rs.100/-, gets debited from the account, which the respondent
bank, as issuing bank, maintained. It is the funds of the issuing
bank, which is utilised, in other words, to effect the payment. It
is, therefore, clear that there is service rendered by the bank,
which is in connection with Clause (iii) of Section 65(33a). It is
another matter that under the agreement between the issuing
bank and the cardholder, the cardholder would be paying the sum
of Rs.100/- to the issuing bank, within the stipulated period and,
if he does not pay, he would incur the liability to pay interest, as
stipulated, under the terms of the contract. The fact remains that
there is the risk undertaken, in the first instance, of making
available the funds to satisfy and settle the amount transacted
through the card to the merchant establishment. [Paras 56 &
57][486-E-H; 487-A]
SECTIONS 67 TO 70; WHO IS LIABLE TO PAY
SERVICE TAX, OBTAINED REGULATION AND FILE
RETURN?
3. As far as payment of service tax is concerned which is
governed by Section 68 of the Act, the liability to pay service tax
is cast on every person providing the taxable service to any
person. Sub- section (2) contemplates a departure from the
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mandate of Section 68(1) in that, in regard to taxable services as
may be notified by the Central Government in the gazette, the
service tax is to be paid by such person in the manner prescribed
at the rate specified in Section 66 and the provisions of the chapter
(which is in fact "persons responsible for payment of service tax")
applies as if he is a person liable to pay service tax relating to
such service. Section 68 must be read with Section 69, for it
provides for the liability of a person to get registered. The liability
is cast on the person liable to pay service tax under Chapter V.
There is no case for the respondent that the case is governed by
Section 68(2) for which the taxable service must be notified
thereunder. That the person liable to pay tax under Section 68
must get himself/itself registered in the manner prescribed is
made clear from Rule 4 of the Rules as it clearly provides that
every person liable to pay service tax shall apply to get himself/
itself registered and the entire provisions of rules is premised
upon the liability to get registered being on the person made
liable to pay service tax. No doubt, endorsement of an existing
registration may be possible. Section 70 also cast the liability on
the person liable to pay service tax, to assess the tax due and
furnish return. [Para 59][487-F-H; 488-A-C]
4. The contention of the Respondent, however, in regard
to Section 67(1)(i), in its written submission before this Court, is
that the expression "service provider" will include both issuing
bank and the acquiring bank and the gross amount will be Rs. 5/
-, which includes the consideration of Rs.2/- payable to the issuing
bank and Rs.3/- which is payable to the acquiring bank. This
contention is qualitatively distinct from the case, which has been
set up before the Commissioner and the Tribunal, in the sense
that the case of the Respondent appears to have been that under
Section 67, the service provider was to pay tax on the gross
amount, for which it provided the service and the attempt has
been to contend that no service, as such, was being provided by
the issuing bank. I take it that this is, in effect, an implied
admission that the issuing bank does provide service in the matter
of settling of the amount transacted through the credit card, for
which it earns Rs.2/- as interchange fees. Now, that it is contended
that the expression "service provider", in Section 67(1)(i), will
COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI
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include, the issuing bank and the acquiring bank, I would feel
more reassured in our finding that, all throughout, the respondent
was, indeed, as issuing bank, liable to pay service tax on the
service contemplated under Section 65(33a)(iii). Section 67(1)(i),
as already decoded by me, after its substitution by the Finance
Act, 2006, provides that the value of taxable service will be the
gross amount charged by the service provider for such service
provided or to be provided by him. The contention that the gross
amount would be Rs.5/-, which is made of Rs.3/- for the service
provided by the acquiring bank and Rs.2/- payable to the issuing
bank (interchange fee), overlooks the fact that the gross amount
is predicated with reference to the service actually provided or
to be provided by the particular service provider. Proceeding on
the basis that the words "service provider", includes issuing bank
and the acquiring bank, it is, therefore, clear that the gross
amount to be charged by both the service providers, viz., the
issuing bank and the acquiring bank, must be premised on the
separate service provided or to be provided by them. The words
"gross amount" cannot be the aggregate of the value of the
services provided by the different service holders. The service,
provided by the acquiring bank, is different from the service
provided by the issuing bank. This is far too clear to require any
further elucidation. The value of the service, which constitutes
the measure of the tax, is dependant on the nature of the service.
Apparently, the measure of the tax by way of value, has been
fixed by the Card Association, with which, both the issuing bank
and acquiring bank, have entered into separate agreements. The
activity of the acquiring bank, and, therefore, the services
rendered by the acquiring bank is distinct from the activity of the
respondent bank and, therefore, the service is different and
distinct. In law, therefore, there could not be a gross amount by
adding the value of two distinct services by two different service
providers. Expression "gross amount" is to be understood with
reference to the service provided or to be provided by a particular
service provider and the provision does not appear to me to
embrace within its scope, adding of what would be different gross
amounts for arriving at the gross amount of the service provided
by a particular service provider. In this context, I may notice that
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the words "gross amount charged" have been defined as,
including payment in the many forms, which are mentioned
therein, which includes debit notes, book adjustment and any
amount credited or debited in any account. The interchange fee,
in a transaction of Rs.100/-, is the amount of Rs.2/-, which remains
to the credit of the respondent-issuing bank, when it suffers the
debit of Rs.98/- only, in a transaction of Rs.100/-. In other words,
the Respondent got paid Rs.2/-. It is only Rs.98/-, which makes
its way into the account of the acquiring bank. The merchant
establishment, no doubt, is paid Rs.94.30, in the example given
by the Respondent, out of Rs.98/- received by the acquiring bank.
From the above, it appears to be clear that the Respondent, as
issuing bank, provides service within the meaning of Section
65(33a)(iii). It is towards the same that the Respondent is paid
Rs.2/- as interchange fee. Interchange fee, therefore, is exigible
to service tax. Admittedly, the respondent has not paid any
service tax on the said amount. [Paras 61-63][488-E-H;
489-A-H; 490-A-B]
IS INTERCHANGE FEE INTEREST AND THEREFORE
NOTCONSIDERATION FOR SERVICE?
5. The respondent is a Banking Institution. Undoubtedly,
it falls to be regulated under the Banking Regulation Act. It is, in
fact, a scheduled bank. Interestingly, the Interest Tax Act, 1978,
provides for a charge in Section 4 on interest earned by a credit
institution, which includes the respondent-bank. Undoubtedly,
under Section 18, the tax paid on interest under the Interest Tax
Act canbe deducted under the Income-Tax Act. If the interchange
fee, has been regarded as interest, then, undoubtedly, it would
have been brought to tax under the Interest Tax Act. The
respondent has no case that tax has been paid on the interchange
fee treating it as interest. It is inconceivable that there is a creditor
and debtor relationship between the respondent as issuing bank
and the Card Association or the acquiring bank or even the
merchant establishment. The respondent cannot be described
as a lender of money and the other three players, as just
hereinbefore described, as borrowers. In the context of the
relationship of the respondent as issuing bank, interchange fee
cannot be described as compensation fixed by the parties for use
COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI
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or forbearance of the borrowed money. In fact, the concept of
borrowed money, is predicated on the existence of creditor-debtor
relationship which is absent. Interest, in the context of the
definition, in Law Lexicon by Ramanathan Iyer, places a time
value on the funds or money involved and further, it would also
involve the rate, at which, the interest is calculated. Again, this
definition is apposite in the context of the relationship between a
lender and a borrower. The nature of the service, I have
unravelled, performed by the issuing bank includes the act of
approval of the credit card transactions. It is an integral and
indispensable part of a credit card transactions. It was partly for
this service that the interchange fee is earned by the respondent
as issuing bank. There is no scope for an implied contract as the
interchange fee is apparently paid in terms of the contract. Quite
clearly, there is no scope for applying equity as the basis for the
interchange fee as interchange fee is payable under the contract
and towards service rendered by the respondent. I am, in the
circumstances, of the view that the contention of the respondent
is meritless. [Paras 66, 69][490-G-H; 491-A-B; 493-C-G]
WHETHER CREDIT CARD TRANSACTION A
TRANSACTIONIN MONEY?
6. The interchange fee is earned by the issuing bank as
consideration for service which is provided by the issuing bank.
The complex web of activities indulged in by the three main players
namely the issuing bank, the card association and the acquiring
bank culminates in the settling of the amount due to the merchant
establishment which stood persuaded to make available goods
and services initially on credit but on assurance that the credit
card transaction will be taken to its logical culmination. It is clear
that the active role which necessarily means the activity indulged
in by the issuing bank is indispensable and at the heart of the
transaction in the system under which though through machines
available by the acquiring bank with the merchant establishment
the Merchant gets paid. The issuing bank for each transaction
must approve the transaction. The risk which is undertaken by
the issuing bank which again makes available the funds and
maintains the fund from time to time as per requirement and under
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the contractual obligations is part of the service performed by
the issuing bank. What is sought to be taxed under the act is the
interchange fee and not the amount which is made available.
Therefore, the contention of the respondent that it constitutes
merely transaction in money involves overlooking the service
provided by the respondent as issuing bank. There is clearly
activity in relation to the use of money within the Explanation.
[Para 73][496-B-F]
DEVIATION FROM SHOW CAUSE NOTICE [NUMBER
ONE];
7. One of the contentions raised by the respondent is that
in the Show Cause Notices issued by the Commissioner he
proceeded on the basis of rejection of the version of the
respondent that no service was being performed by the
respondent bank as issuing bank towards the acquiring bank.
However, it is pointed out that there is a deviation in the order
and what is found is service is being performed by the issuing
bank in terms of the agreement with the card association. A
perusal of the order of the Commissioner does indicate that the
respondent has defended the Show Cause Notices by contending
that it was not performing any service to the acquiring bank. The
Courts have not allowed an authority to go beyond the Show Cause
Notice on the basis of the prejudice which is occasioned to the
noticee. In this regard, I must notice that while the Show Cause
Notice does indicate that the Commissioner had proceeded in a
manner rejecting the contention of the respondent that they are
not rendering any service to the acquiring bank has been not
correct, there is indeed reference to the basis for the final finding
indicated in the notice in indicating that the respondent has
earned service income, viz., interchange fee, which is taxable
under Section 65(105)(zzzw) read with Section 65(33a). Moreover,
being a question of applying the law to certain facts which are not
in dispute namely the manner in which the credit card system
operates about which there is no dispute and on our finding that
service is indeed provided by the respondent in relation to the
settlement of the amount transactions under the credit card, in
the facts of this case, the respondent should not succeed on this
point. [Para 84][499-D-H; 500-A-B]
COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI
BANK N. A.
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CERTAIN CIRCULARS; DOUBLE TAXATION
8. Circular No. ST-51/13/2002 dated 07.01.2003, which was,
in fact, relied upon by the respondent before the Commissioner,
came to be issued in the light of doubts raised regarding
classification of certain services, which appeared to fall under
two or more categories simultaneously. The above Circular
contemplates that if the one service provider provides more than
one taxable service, one registration is sufficient but is to be
endorsed for all the taxable services. Further, tax liability will
have to be discharged for each of the taxable services separately.
In the context of the credit card transaction, as issuing bank for
the cardholder, the respondent is providing taxable service to
the card holder. That apart, if, under Section 65 (33a) of the Act,
the respondent has been engaging in other services till 01.07.2012
and, thereafter, has been providing different services, it would
have to discharge its tax liability of the taxable services
separately. No doubt, the Circular, in paragraph-3, did go on to
deal with the issue of correct classification of a particular service.
But it is one thing to say that there is one service and the question
is one of classification of that service and another to say that if
there are more than one service provided by the same service
provider, each of which is separately taxable, then, the service
provider has to pay only one tax. It is clear that qua each of
separate service provided, the service provider would be liable
to pay tax separately. [Paras 86, 87][500-C, G-H; 501-A-C]
EFFECT OF SERVICE TAX BEING A VALUE ADDED
TAX
9. As far as contention of the appellant that service tax is a
value added tax, is concerned, there can be no quarrel. The
service provided by each of the service provider in a chain of
transactions where there is value addition, must bear the burden
of service tax on the value of the service. The law also provides
for tax credit being availed. However, when it comes to the
question relating to taxing a single service, it is clear that there
cannot be taxation more than once. It is one thing to say, in other
words, that when there are different services, provided under
the taxing entry, each of the taxable services became taxable
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under the previous regime, as also the framework after
01.07.2012, for the same service, the law does not permit
repetition of the same tax on the same measure of tax, with regard
to the same service. In other words, if for the services rendered
by the respondent as issuing bank, it has earned interchange
fee, which should constitute the measure of the tax, the acquiring
bank, in terms of a practice followed, it has paid tax on the said
amount, then, it would be illegal and unfair to tax the respondent
all over again. It is another thing that, that the respondent is the
person who was liable to pay the tax on the interchange fee, after
filing return under Section 70 and treating the interchange fee as
the value of the taxable service. These are all matters, which I
am in agreement with the learned Additional Solicitor General.
However, it is difficult to agree with the learned Additional
Solicitor General that even if the acquiring bank has discharged
the liability qua the interchange fee also, treating it as part of
MDR, then, the respondent is liable to pay tax. I am conscious
that the argument of the appellant involves the following
reasoning. In law the respondent being found liable to pay tax on
the interchange fee and, as admittedly, the tax has not been paid
by it, it is not the lookout of the Department to consider, whether
the payment of the tax by the acquiring bank, was effected, even
assuming, it was on an amount including the interchange fee.
But this involves, in effect, double taxation. [Paras 92 & 93]
[503-A-G]
SHOW CAUSE NOTICE: DIVERGENCE FROM THE
ORDEROF THE COMMISSIONER [NUMBER TWO];
10. Another aspect pointed out by the respondent is that in
the Show Cause Notice, the Commissioner has proceeded on
the basis that payment by the acquiring bank of service tax on
the interchange fee, will not exonerate the liability of the
respondent to pay the service tax. It is pointed out thereafter to
go on to find that the respondent has not produced proof of
payment, involves depriving the respondent of the opportunity
to meet such a case and also to depart from the admitted position
that acquiring bank has paid the tax. In other words, when the
Commissioner proceeded on the basis in the Show Cause Notice
that the payment, by the acquiring bank, will not detract from the
COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI
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liability of the respondent, it is impermissible to turn around and
find that the respondent has not proved that the acquiring bank
has paid the tax. It may be true that the Show Cause Notice
contains the statement that the fact of payment of service tax on
the interchange fee by the acquiring bank, does not exempt the
assessee from payment of service tax, on the consideration
received by them towards rendering of service as each person is
liable to pay service tax for the service rendered by them.
Essentially, it would appear that the Commissioner was referring
to the case of the respondent that acquiring bank had paid the
tax on the interchange fee. No doubt, it does create the
impression that the Commissioner proceeds, as if, there was
payment by the acquiring bank, which was the case of the
respondent during audit. As noted, there is also the case for the
appellant that being a value added tax, even if, payment is made
by the acquiring bank, the respondent would remain liable. It is
to be noted that when the Order of the Commissioner was
challenged before the Tribunal, no material is produced in support
of the claim that the acquiring bank had discharged the
liability even on the amount of interchange fee. [Paras 94 &
95][503-G-H; 504-A-E]
11. In this regard, it is apposite to notice that in the Appeal
filed before the Tribunal, produced along with the Compilation
No. 3, by the respondent, one of the grounds taken, no doubt, is
that the impugned Order travelled beyond the scope of the SCNs.
Thereunder, however, the complaint, which was sought to be made
out was that in the SCN, the case set up by Commissioner was
that the service was to the acquiring bank, whereas, the Order
passed by the Commissioner was to the effect that service was
provided to the Card Association. There is no ground taken in
the Appeal, as such, in relation to the SCNs proceeding on the
basis of the payment made by the acquiring bank, being accepted,
and thereby, a new case being found in the Order. In the Order
passed by the Tribunal, the Tribunal notices the complaint about
the Commissioner departing from the SCN in terms of the ground
in the Appeal, which have been set out. Last but not the least, it
is relevant to notice the actual reasoning of the Tribunal, which
led to the Order of the Commissioner being set aside. On the
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basis of the said Order of the Tribunal, and finding no reason to
differ from it, on this legal ground, the Order of the Commissioner
was set aside. I may notice that in the said case, in paragraph-6,
the Department, in fact did not dispute that service tax was being
paid by the acquiring bank. In such circumstances, the argument
of the respondent in this regard, does not appeal to me. I must
notice that respondent has not produced any material to establish
its case. [Paras 96, 97, 99 & 100][504-E-H; 505-D-E, G-H;
506-A]
WHETHER
THE
EXTENDED
PERIOD
OF
LIMITATION IS AVAILABLE IN REGARD TO THE DEMAND
UNDER SHOW CAUSE NOTICE DATED 24.04.2013?
12. The Commissioner has rejected the contention of the
respondent that there is no positive act by it towards wilful
suppression and there was only mere inaction by holding that the
factum of receipt of interchange fee being not in dispute and the
provisions being clear, the act of non-payment constituted a
positive act. In the milieu of self- assessment, it is for the
respondent to assess and declare the full details and pay tax.
The Commissioner also rejected the case that the department
had knowledge based on audit. It is found by him that the banking
industry is ever evolving and with new business models and the
Department cannot be faulted not knowing the implications. It
was further found that the decisionsrelied upon by the respondent
related to the period when classification lists, valuation lists and
gate passes were to be approved. The assessment itself was done
by the officers. It was further found that there was no effort made
by the respondent at seeking clarification. I must notice that in
the impugned order, that tribunal did not deal with the issue
relating to the legality of the respondent availing the extended
period. It instead has chosen to set aside the impugned order of
the Commissioner on merits. [Paras 104-106][509-A-E]
13. Therefore, the upshot of the above discussion is as
follows:
I)
It is found that the respondent, as issuing bank, was
providing service, as found by the Commissioner;
COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI
BANK N. A.
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II)
For the period prior to 01.07.2012, the service of the
respondent, as issuing bank, squarely fell within
Section 65(33a)(iii) of the Act;
III)
The contention of the respondent that interchange
fee is to be treated as interest and, therefore, not
taxable under the Act is rejected;
IV)
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;
V)
The Order of the Tribunal in ABM Amro, dealing with
the position of an issuing bank, under the framework
of the Act, is patently unsustainable;
VI)
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;
VII) The respondent, as 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;
VIII) 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, as found
by me, and which would be the value of the service,
for the purpose of Section67(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;
IX)
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
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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;
X)
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. I
am also of the view that the respondent should be
provided an opportunity to establish that the acquiring
bank has discharged the tax liability in regard to
interchange fee. [Para 109][509-G-H; 510-A-H;
511-A-C]
M/s ABN Amro Bank v. Commissioner of Central Excise
and Customs [2011] 2 SCR 874; Standard Chartered
Bank And Ors. v. CST, Mumbai-i And Others 2015 [40]
S.t.r. 104 (Tri. - Del) : [2010] 13 Scr 381; M/s ABN Amro
Bank NV Presently Known As Royal Bank Of Scotland
NV v. Commissioner Of Central Excise, Customs And
Sevice Tax, Noida [Decision Rendered On 23.7.2018]
2018-TIOL-2811-CESTAT / MANU/CN/0079/2018;
Commissioner of Central Excise, Vishakhapatnam v.
Mehta and Company (2011) 4 SCC 435 : [2011] 2 SCR
874; Association of Leasing & Financial Service
Companies v. Union of India and others (2011) 2 SCC
352 : [2010] 13 SCR 381; Commissioner of Central
Excise Nagpur v. Ballarpur Industries Ltd. (2007) 8 SCC
89: [2007] 9 SCR 650 / [2007] 215 ELT 489 (SC);
Larsen & Toubro Ltd. v. Commissioner of Central Excise,
Pune II (2007) 9 SCC 617 : [2007] 5 SCR 1141 2007 /
[211] ELT 513 [SC]; U.S. Tax Court in Capital One
Financial
Corporation
and
Subsidiaries
v.
Commissioner, 133 TC No.8 (September 21, 2009);
Ferro Alloys Corpn. Ltd. v. A.P. State Electricity Board
COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI
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and another 1993 Supp (4) SCC 136; State of
Karnataka and others v. Karnataka Pawn Brokers
Association and others (2018) 6 SCC 363 : [2018] 10
SCR 409; Union of India and others v. Kaumudini
Narayan Dalal and another (2001) 10 SCC 231 : 2001
(4) SCALE 227; Commissioner of Central Excise v. Tata
Engineering and Locomotives Co. Ltd. (2003) 11 SCC
193: 2003 (8 ) JT 557; Birla Corpn. Ltd. v.
Commissioner of Central Excise (2005) 6 SCC 95 :
[2005] 1 Suppl. SCR 821; Jayaswals NECO Ltd. v.
Commissioner of Central Excise, Nagpur (2007) 13 SCC
807; Sri Krishna Das v. Town Area Committee (1990) 3
SCC 645 : [1990] 2 SCR 13; Union of India (UOI)
and others v. Tata Iron and Steel Company Limited,
Jamshedpur (1976) 2 SCC 123 : [1976] 2 SCR 1044;
Commissioner of Central Excise, Aurangabad v. Bajaj
Auto Ltd., Waluj, Aurangabad Through Its VicePresident (Materials) and others (2010) 13 SCC 117 :
[2010] 14 SCR 184 - referred to.
Case Law Reference
[2011] 2 SCR 874
referred to
Para 34
[2010] 13 SCR 381
referred to
Para 39
[2007] 9 SCR 650
referred to
Para 41
[2007] 5 SCR 1141
referred to
Para 42
[2018] 10 SCR 409
referred to
Para 68
[2005] 1 Suppl. SCR 821
referred to
Para 79
[1990] 2 SCR 13
referred to
Para 90
[1976] 2 SCR 1044
referred to
Para 91
[2010] 14 SCR 184
referred to
Para 107
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Per S. RAVINDRA BHAT, J. (Dissenting)
HELD: 1. The pre-existing definition of credit card services
[Section 65(12)(ii)] merely mentioned "credit card services" as
part of banking and financial services - without elaborating what
kind of services were comprehended in the definition. The 2006
amendment segregated this, by omitting sub-clause (ii) of Section
65(12) and enacting a new Section 65(33a). A plain reading of
Section 65 (33a) reveals that seven distinct heads of credit card
services are now comprehended within the broad description of
"credit card services". Each category - falling in sub-clause (i)
to (vii) deals with a specific, enumerated service. The controlling
expression "credit card, debit card, charge card or other payment
card services includes any services provided" broadens the
coverage of this species of service, in contrast with the preexisting law. This inclusion by specific enumeration of "debit card,
charge card or other payment card service" is an expanded class
of card service. However, the further use of the term "includes"
even while broadening (by enumeration of specific subcategories) "credit card services" - also has the effect of limiting
the coverage under Section 65(33)(a) to only the seven
enumerated categories. This is apparent from the fact that after
sub-clause (vii), there is no residuary provision authorising similar
treatment to non-enumerated activities i.e., those not falling
within sub-clauses (i) to (vii). In other words, the use of the
expression "includes" while broadening - by specific enumeration
of seven categories of card services - also limits the inclusive
nature to those categories, and no more. The second
incontrovertible feature is that each enumerated category falling
within a sub-clause refers only to one kind of service. Thus, by
sub-clause (i), the service referred to is the issuing of a card to a
card holder; and by sub-clause (ii), the service of receipt,
processing of applications, transfer of embossing data to the
issuing bank's personal agency, ATM, PIN number generation,
renewal or replacement of cards, change of address etc., -
essentially forming separate and ancillary services to the issuing
card. This service largely involves one business entity providing
service to another. By sub-clause (iii) - which this case is
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concerned with - the service involved is by any person, [i.e., the
issuing bank as defined in sub-clause (i)] and an acquiring bank,
to any other person in relation to settlement of any amount
transacted through "such card". The emphasis here: apart from
other related issues, is with the service of settlement of any
"amount transacted" through the card. It is significant to notice
that the reference to the service provider "by any person" is
broad and comprehends all categories of persons and entities
mentioned in sub-clause (i) (bank, financial institution, etc.) having
regard to the definition of "person" [in Section 65B (37)]. Such
being the case, the reference to issuing bank would fall within
the broad description of "any person". In any case, having defined
"issuing bank" widely, per sub-clause (i), Parliament need not
have referred to "any person, including issuing bank"; the
meaning would have been the same if sub-clause (iii) had referred
only to an "issuing bank" in place of "any person". However,
having regard to the essential nature of a credit card transaction,
the inclusion is not directed as much to an issuing bank as to the
specific reference to "an acquiring bank". That term is not defined
elsewhere except in this sub- clause, and by the explanation
wherein the acquiring bank is defined as a bank, company,
financial institution, etc. who makes the payment to any person,
who accepts such cards. Crucially, then, only in Section 65(33a)(iii)
does service by any person include service by the issuing bank
and the acquiring bank. The use of the conjunctive "and" [in
Section 65 (33a) (iii)] is to be contrasted with the other subclauses- Parliament used the disjunctive "or" in all other subclauses. The clear intention for this difference was that service
providers could be business entities providing more than one
service under one sub-clause [such as sub-clauses (ii), (iv), (vi)
and (vii)]. The use of the conjunctive "and" in clause (iii)
therefore, is telling and consequently, should receive literal
interpretation. Therefore, there is disagreement with the
judgment of K.M. Joseph, J on this aspect. [Paras 19-22]
[543-G-H; 544-A-H; 545-A-E]
2. There can be no debate that indisputably, Parliament,
has to be attributed with full knowledge of the nature of credit
card business models, where the primary objective of the entities
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that provide service, is to ensure payment for the underlying
transaction between the card holder and the provider of goods
or services. Parliament would also know that there are three
business entities whose joint or concurrent functioning is essential
for settlement of each credit card transaction. The three business
entities are the issuing bank, the acquiring bank and the network
[such as Visa, Mastercard, or RuPay, etc., which has been kept
out of the definition under Section 65(33a)]. These are crucial
factors and consequently I am of the opinion that the conjunctive
"and" should be read literally and be given the meaning
conjunctively rather than disjunctively. The result, therefore, is
that when a person (i.e., the issuing bank), and an acquiring bank,
provide service to another person, in relation to settlement of
any credit card transaction, that service, by such person, and the
acquiring bank, amounts to a "credit card service"- per Section
65 (33a). The unified nature of the service, to another (be it the
card holder or the merchant, who are participants in the primary
transaction and therefore beneficiaries) is the subject matter of
sub-clause (iii) of Section 65(33a). I am fortified in this conclusion
also in the use of the term "or" in sub-clauses (iv), (vi) and (vii)
which define services capable of being provided to another
business entity or service provider, and not a customer.
[Para 23][545-F-H; 546-A-B]
3. Justice Joseph in his judgment, relies on the contractual
arrangements in question, to conclude that "legally they are
separate services as the nature of service rendered by the issuing
bank is different from the service rendered by acquiring bank".