COMMISSIONER OF GST AND CENTRAL EXCISE versus M/S CITI BANK N. A.

Citation: [2021] 13 S.C.R. 424 · Decided: 09-12-2021 · Supreme Court of India · Bench: K.M. JOSEPH · Disposal: Matter referred to larger bench

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Judgment (excerpt)

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SUPREME COURT REPORTS
[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, respondent-
bank 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, 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 a

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