Commissioner Of Gst And Central Excise vs M/S Citibank N.A

NON-REPORTABLE 2024 INSC 808 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8228 OF 2019

COMMISSIONER OF GST AND CENTRAL EXCISE ..... APPELLANT

VERSUS

M/S CITIBANK N.A. ..... RESPONDENT

WITH

CIVIL APPEAL NO. 89 OF 2021

J U D G M E N T

SANJIV KHANNA, J.

We have heard the learned counsel appearing for the

parties at some length.

2. The contention of the Revenue is that the acquiring bank

should have paid service tax on the Merchant Discount Rate 1

minus the interchange fee, and the issuing bank should have

paid service tax on the interchange fee.

3. We are of the view that the judgment and reasoning given by

S. Ravindra Bhat, J. is acceptable and it is in accordance Signature Not Verified with the provisions of Clause (iii) of Section 65 (33a) of Digitally signed by babita pandey Date: 2024.10.22 17:05:02 IST Reason:

1 For short, “MDR”.

1 Civil Appeal No. 8228/2019 etc.

the Finance Act, 19942.

4. S. Ravindra Bhat, J. rightly observes that as per Section

65(33a) of the Act, seven distinct heads of credit card

services were sought to be taxed, the idea being to broaden

the coverage of the species of services into taxation net.

Clause (iii) thereof applies to service by any person, which

includes service by the issuing bank and the acquiring bank.

The use of the word ‘and’ in conjuncture is indicative of the

legislative intent. MDR is charged/levied by the acquiring

bank at the first point in time and subsumes both the

acquiring bank fee and the interchange fee of the issuing

bank, as well as the platform fee. It is the sum total of the

three. The aforesaid charge occurs first in point of time and

deduction and payment of service tax at this stage is

beneficial to the Revenue. It is not the case of the Revenue

that payment by the acquiring bank to the issuing bank, known

as interchange fee, is separately chargeable, in addition to

the service tax on the MDR.

5. To support the conclusion, S. Ravindra Bhat, J. has said

that, in reality, there is one unified service which is

rendered to the consumer, that is, the credit card holder,

and the merchant. The subsequent bifurcation in the context

and the nature of the transaction, read with Sections 66 and

68 of the Act and Rule 5(1) of the Service Tax (Determination

2 For short, “The Act.”

2 Civil Appeal No. 8228/2019 etc.

of Value) Rules, 2006, is immaterial as MDR is taxable and

service fee is to be taxed. MDR, as a service, has been taxed

and also paid.

6. We wonder whether the Revenue would have accepted the

bifurcation as argued by them in case the acquiring bank and

the issuing bank had taken the stand which is now taken by

them. While interpreting a tax provision, one must keep in

mind that the legislature ennobles the ease of collection of

tax and payment of tax. These principles, especially when

there is no loss of revenue, can be taken into consideration

for interpreting a provision in case of doubt or debate.

7. It is pertinent to note that even the opinion expressed by

K.M. Joseph, J., while adopting a different interpretation of

Section 65 (33a) of the Act, goes on to hold, vide paragraphs

86 onwards of the judgment, that there should not be double

taxation. However, it has been observed thereafter that the

onus to show that payment of service tax on the entire MDR

was made by the acquiring bank will be on the issuing bank,

that is, the respondent, M/s. Citibank N.A.

8. We would, on the last aspect, observe that the entire data

and details are available with the Service Tax Department and

could have been easily ascertained before issuance of the

show cause notice. Interestingly, the show cause notice

proceeds on the basis that, regardless of the service tax

3 Civil Appeal No. 8228/2019 etc.

paid by the acquiring bank on the full MDR, the issuing bank

would be liable to pay service tax on the proportion of its

share in the MDR, which is the interchange fee.

9. We find that the entire amount of the service tax payable on

the MDR has been paid to the Government and there is no loss

of revenue.

10. Recording the aforesaid, the Reference and appeals are

disposed of, holding that service tax is not separately

payable on the interchange fee, as service tax has been paid

on the MDR.

11. Pending application(s), if any, shall stand disposed of.

..................J. (SANJIV KHANNA)

..................J. (SANJAY KUMAR)

..................J. (R. MAHADEVAN) NEW DELHI;

OCTOBER 16, 2024.

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