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

37Copy pinpoint37. In Order dated 16.11.2018, the Tribunal dealt with the SCNs, which I have set out. The subsequent Order dated 20.11.2019, covers the period from April, 2015 to March, 2016. The Tribunal referred to the decision of the larger Bench in Standard Chartered Bank (supra). The said Judgment was found to be distinguishable.

38Copy pinpoint38. There is no discussion, it was found, or counter response that Standard Chartered Bank (supra) is not applicable. The question of interchange fee was not involved in Standard Chartered Bank (supra). The Tribunal agreed with the contention of the Respondent that it was not the submission of the assessee in Standard Chartered Bank (supra) C that interchange fee was not consideration for service and the Tribunal and, therefore, did not have any occasion to examine, whether or not, the activity of issuing bank was service and covered by the taxing entry for credit card services. The Tribunal went on to, on the other hand, derive support from the Judgment in ABM Amro (supra) after adverting to paragraphs- 6 to 8, finding that the issue has been conclusively decided by the Tribunal in ABM Amro (supra) against the Revenue. The said Order was followed and the Order of the Commissioner was set aside. THE CONTENTIONS OF THE PARTIES

39Copy pinpoint39. Shri Balbir Singh, learned Solicitor General, would, after adverting to the salient features of the credit card transaction, contend that the respondent, as issuing bank, is liable to pay tax on the interchange fee. He drew our attention to the definition as contained in Section 65(33a) of the Act. He emphasised that the definition clause devises the employment of the word ‘includes’. He also took us to the Orders passed by the Tribunal in Standard Chartered Bank (supra) and ABN Ambro F (supra). After the unravelling of the different dimensions of a credit card transaction made exigible to service tax expressly, he would contend that there was no scope for the contention of the respondent that there was no service rendered by it. Both for the period prior to 01.07.2012 and for the period thereafter, it was crystal clear that the respondent G was rendering and continue to render service within the meaning of the Act and it is impossible to contend that the interchange fee is not liable to be taxed in the hands of the respondent. The interchange fee is the consideration that accrues to the issuing bank for verification, facilitation and extending the purchase value in line with the contractual agreement, the issuing bank has with the Card Association and also for taking the H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 473 BANK N. A. [K. M. JOSEPH, J.]

risk of collection from the card holder. Interchange fee is, according to the appellant, consideration received as a result of contractual agreements with the Card Association to facilitate purchase of goods or services. The contention of the respondent that the activity is to be treated as a transaction in money, is disputed. The issuing bank is debited the purchase amount less interchange fee. The interchange fee is the service charge for allowing the transaction. The debited amount is a transaction in money. The service charge is demanded only on the interchange fee and not on the purchase amount. The Order of the Tribunal in ABN Ambro Bank (supra), cannot be relied upon being per incurium, as the same was rendered without appreciating the inclusive definition of ‘credit card service’ under Section 65(33a) read with Section 65(105)(zzzw) and C Section 66B(44) of the Act.

40Copy pinpoint40. The complaint of the respondent that there is double taxation, is disputed. Reliance is placed on the Judgment of this Court in Association of Leasing & Financial Service Companies v. Union of India and others4, to contend that the service tax is the value added tax and service tax is imposed every time service is rendered to the customer/ client. The fallacy in the argument of the respondent that interchange fee is part of MDR, which has already suffered tax, is that, interchange fee is paid prior to the receipt of MDR. In other words, the deduction of MDR is done at the time of settling the money to the merchant establishment. This happens only after receiving the amount from the issuing bank, which is net of interchange fee. The interchange fee is the consideration given to the issuing bank for validating the e-transaction, whereas MDR is the consideration for the acquiring bank for settling the merchant establishment. MDR is fixed as the percentage of sale cost or service cost, whereas interchange fee is fixed by the Card F Association, taking into account other aspects the cost of moving money, the time value of money in terms of current interest rates and the relative risks involved, etc.. They are two independent transactions. There are also two separate services forming part of credit card service. No service tax has been paid by the respondent on the amount received as G interchange service towards rendering taxable service. The fact of payment of service tax by acquiring bank does not absolve the issuing bank from payment of tax on the consideration received by it. There is no double taxation. It is also contended that without prejudice to the said

4 (2011) 2 SCC 352 H

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A contention the respondent has not produced evidence to establish payment of tax by the acquiring bank on the interchange fee. It is also contended that the extended period limitation has been rightly invoked in respect of the SCN dated 24.03.2013. There was no basis for the respondent to form a bonafide belief that their activities are not liable to service tax. There was no Order of the Tribunal which could have persuaded the respondent to think that it was not liable to pay tax. The definition in Section 65(33a) is unambiguous. No clarification was sought from the Department. Under the Regime of Self Assessment, the onus is only on the assessee to assess the tax liability honestly and as per law. It was only due to the verification of the accounts during audit, that the evasion of respondent, came to light. During the investigation also, it was contended by the respondent that the service tax had been discharged by the acquiring bank but they did not submit any proof. The present was, therefore, a case of fraud, wilful misstatement and suppression.

41Copy pinpoint41. The respondent, on the other hand, contended that in view of there being no appeal against the Order of the Tribunal in ABN Ambro Bank (supra), there could be no pick and choose and the present Appeals are not maintainable. It is further contended that the Appeals are also not maintainable for the reason that the Commissioner had deviated from the Show Cause Notices and arrived at findings on matters which were contrary to the case set up in the Show Cause Notice. It goes to two aspects. In the Show Cause Notice, it is stated, as already noticed, that even if the acquiring bank has paid tax, that would not absolve the respondent from its liability to pay tax. In other words, Show Cause Notice is based on acceptance of payment of service tax on the entire MDR, which includes the interchange fee, but in the impugned Order, F the finding is that the respondent has not proved such payment. Secondly, it is contended that whereas in the Show Cause Notice, the case of the Department is that the respondent, as issuing bank, is providing service to the acquiring bank, in the impugned Order, what is found is, that the interchange fee is by way of service to the card network. Reliance is placed on Judgment of this Court in this regard in Commissioner of G Central Excise, Nagpur v. Ballarpur Industries Ltd.5. The nature of the credit card transaction is highlighted. It is pointed out that the acquiring banks incur expenditure on installing swiping machines at the different merchant establishments. They are also responsible for ensuring payment

5 H (2007) 8 SCC 89 / [2007] 215 ELT 489 (SC)

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 475 BANK N. A. [K. M. JOSEPH, J.]

to the service recipient within two days of transaction (T+2) as per the A mandate of the Reserve Bank of India. Regarding the role of the issuing bank, it is stated that when the credit card is swiped by the card holder, on approval of the transaction, the entire chain of activities, is triggered. In the Table given, which consists of a transaction worth Rs.100/-, the card network debits the account of the respondent to the extent of Rs.98/ B -. This amount is remitted to the acquiring bank. Rs.2/- remains to the credit of the issuing bank and this sum is called interchange fee. This is the income of the issuing bank. The acquiring bank receives Rs.98/-. It remits Rs.94.30 to the merchant establishment. The acquiring bank retains its service consideration of Rs.3/-. At the rate of 14 per cent, 70 paise is payable as service tax on the total MDR of Rs.5/-. It is the case of the respondent that when the acquiring bank has paid the said amount of service tax, the respondent cannot be called upon to again pay tax. Millions of transactions are processed every day. There is minimum human intervention as it is technology, which facilitates it. The same bank can function as issuing bank and acquiring bank. For all transactions, where Citi Bank has functioned as acquiring bank, it has retained Rs.3/ - from the merchant establishment as its fee but it has remitted 70 paise to Service tax authority. The service tax is collected from the merchant establishment and remitted to the Department.

42Copy pinpoint42. Under Section 67(1) of the Act, the respondent contends, the gross amount, which is charged by the service provider, will be Rs.5/-. E In the present case, the expression, ‘service provider’ will include both the issuing bank and the acquiring bank. The gross amount will be Rs.5/ -, which includes Rs.2/- payable to the issuing bank and Rs.3/-, which is payable to the acquiring bank. Reliance is placed on Circular No. 51/13/ 2002 dated 07.01.2003 and Instruction bearing F.No. 150/1/94-CX4 dated F 02.05.1996 issued by CBEC. Reliance is also placed on Department letter F. No. 341/18/2004-TRU(Pt.) dated 17.12.2004. It is submitted, on the basis of the analogy drawn, that the interchange fee cannot be taxed once again, as, under Section 65(33a)(iii), the service has been provided by both the issuing bank and the acquiring bank and charged accordingly. For the period after 01.07.2012, the transition to the Negative G List did not mean that the credit card services could be split up into individual components and taxed again. The credit card services continue to be the taxable service. Section 67(1)(i) continued to levy service tax on the gross levy, i.e., the MDR. There is no averment in the Show Cause Notice, calling upon Citi Bank to submit proof that the acquiring H

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A bank had paid the applicable service tax. The finding that the respondent has not proved the payment by the acquiring bank of the service tax on the amount, including the interchange fee, was without any opportunity. The finding is impugned as being absurd, as there is no mechanism for the acquiring bank to pay part service tax on only Rs.3/-. It is alleged to be contrary to Section 65(33a)(iii) and the Rules made thereunder. The B Indian Bank Association, in which there are Nationalised Banks as well, have represented about the practice of paying tax by the acquiring bank on the gross amount of MDR. It is further contended that the absurdity of the suggestion of the Department, can be illustrated with an example where a Bank is both the issuing bank and the acquiring bank. It earns a C gross MDR of Rs.5/-. It pays service tax on Rs.5/-. If the bank is again asked to pay separately on Rs.2/-, there would clearly be double taxation. The Department could have easily cross-checked by way of a sample check. Service tax is a passthrough levy. In other words, it can be used as an input tax credit for payment of output tax by the recipient. The credit card service is an input service as far as merchant establishments are concerned. If the service tax on interchange fee is demanded once again, there is no mechanism to take the service tax credit, even though, it has to be treated as a service provided by the issuing bank. No specific invoice is issued by the issuing bank either on the acquiring bank or on the merchant establishment, since the issuing bank does not know the identity of the merchant establishment or the acquiring bank. Neither the Act nor the Rules contemplate multiple payments. Service tax is payable only once on the gross service consideration. It is contended that the extended period of limitation for the period 2007-2015 could not have been invoked. The issue is interpretational. There was no suppression when facts are known to both sides. Reliance is placed on F Ballarpur Industries Ltd. (supra), and Larsen & Toubro Ltd. v. Commissioner of Central Excise, Pune II6. ANALYSIS THE NATURE OF THE CREDIT CARD TRANSACTION

43Copy pinpoint43. In the Counter Affidavit, filed on behalf of the respondent in Civil Appeal No. 8228 of 2019, the stand of the respondent in regard to the nature of the transaction appears to be as follows:

6 H (2007) 9 SCC 617 2007 / [211] ELT 513 [SC]

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 477 BANK N. A. [K. M. JOSEPH, J.]

“The manner in which a credit card purchase (transaction) occurs A is diagrammatically described below:

E All above transactions are powered by a technological platform and take place in a matter of seconds.

9. The manner of settlement of credit card purchase transactions, i.e., money flow and service tax charged, is as follows: F

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A 10. The above manner of settlement is diagrammatically depicted below:

11. In terms of the above diagram, the Appellant has sought to collect tax on interchange fees of Rs. 2 again in the hands of the Issuing Bank which has already been discharged in the hands of the Acquiring Bank. E

12. xxx xxx xxx

13. xxx xxx xxx

14. Credit Card system: The credit card system was introduced to facilitate transactions between Merchant Establishments and F Credit Card Holders. The system provided Card Holders with a convenient means to purchase goods and services without having to carry cash/ issue a cheque or have another form of credit, and enabled Merchant Establishments to reach 10 out to a larger customer base, with assured payment for goods or services and G protection from fraud. In modern credit card transactions, following five parties are involved, namely: i. Issuing Bank - The Issuing Bank issues credit cards and therefore, effectively lends monies to its Card Holders. The contractual relationship between an Issuing Bank and its Card Holders is spelt out in the cardholder agreement / H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 479 BANK N. A. [K. M. JOSEPH, J.]

terms & conditions. Service fees recovered by the Issuing A Bank from Card Holders for such service is charged to service tax. ii. Credit Card Holders - The Card Holder is the customer to whom the Issuing Bank issues a credit card. The credit card evidences a potential line of credit established by the B Issuing Bank using which the Card Holder may purchase goods or services at any Merchant Establishment. iii. Acquiring Bank - The Acquiring Bank is a bank which recruits, screens, and accepts Merchant Establishments into a Card Network’s network. They provide Point of Sale C (‘POS’) machines to Merchant Establishments which enable Merchant Establishments to validate and accept credit card payments. The Acquiring Bank processes credit card transactions for Merchant Establishments within the respective Card Network and also operates as per the respective Network’s Operating Regulations. Any service D fees (typically Merchant Discount Fee/ MDF) from Merchant Establishment is fully charged to service tax. iv. Merchant Establishment - The Merchant sells goods or services to Card Holders (buyers). The Merchant has no contractual relationship with the Card Holder’s Issuing E Bank. The Merchant is provided with POS machines by the Acquiring Bank to enable it to accept card payments, for a fee (Merchant Discount Fee / MDF) which is preagreed and deducted at the time of settlement of the transactions. For this, the Merchant operates a bank account F with the Acquiring Bank for credit towards sales made to Card Holders. v. Card Network - Card Networks provide the infrastructure /gateway system for electronic (credit card) transactions to effectuate (for example, Visa or MasterCard). They G process transactions between Acquiring Banks and Issuing Banks, allowing purchases to be made, authorized and settled. Card Networks function as an interface between the Acquiring Banks and Issuing Banks, operating like an exchange or clearing platform. Thus, they have the key role in settlement of a Credit Card transaction. The Card H

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A Network prescribes Operating Rules and fixes the ‘Interchange Fees’ that Issuing Banks earn, besides managing interchange flow between banks. The Card Network in most cases is located outside India. The charges levied by Card Networks, whether to the Acquiring Bank or Issuing Bank therefore suffer service tax under reverse B charge mechanism.

15. In any credit card transaction, involving each of the five parties stated above, there arises the following distinct contractual (service) relationships, between: C (i) the Issuing Bank and the Card Holder, (ii) the Acquiring Bank and the Merchant Establishment, (iii) the Card Network and the Issuing Bank, (iv) the Card Network and the Acquiring Bank. D

16. In each of these contractual relationships described above, services are provided by the former to the latter and service tax is charged on the consideration for the respective services, none of which is contested by the Petitioner:

E (i) service provided by the Issuing Bank to the Card Holder is charged to service tax , (ii) service provided by the Acquiring Bank to the Merchant Establishment is charged to service tax, (iii) services provided by the Card Network to the Acquiring F Bank is charged to service tax, and (iv) services provided by the Card Network to the Issuing Bank is charged to tax.

17. The payment by Merchant Establishments to the Acquiring G Bank (point (ii) above), known as Merchant Discount Fee includes a portion (known as Interchange Fees) that is shared by the Acquiring Bank with the Issuing Bank. It is the case of the Appellant -Department that the Issuing Bank receives Interchange Fees for services rendered to the Card Network, which has not suffered tax.” H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 481 BANK N. A. [K. M. JOSEPH, J.]

44Copy pinpoint44. In the reply of respondent to SCN 97/15, it is, inter alia, stated: A You may notice that in the reply to the Show Cause Notice No. 97 dated 11.08.2015, which relates to the period April, 2014 to March, 2015, after Section 66B of the Act came into force. “1.2 The Noticee provides various financial services including the Credit Card Services. In these credit card transactions, the B Noticee issuing credit cards to customers is known as ‘Issuing Bank’. Transactions involving purchase of goods and services are undertaken by such credit card holders by using such cards at various Merchant Establishments. The process flow of the said transaction is explained below: C

(i) The credit card is required to be swiped on electronic equipment’s known as Point-of-Sale terminals in order to charge the said card holder for purchase of goods and services from the Merchant Establishment. D (ii) The said terminals are provided to the Merchant Establishments by the “Acquiring Bank” which enables validation and acceptance of payment by credit card. (iii) The Card Associations (‘the Associations’) such as VISA, MasterCard, etc. facilitate validation and settlement of transactions by providing a settlement platform to the Issuing Banks (i.e. the Noticee) and Acquiring Banks. The moment a card holder swipes the card at a Merchant Establishment, the online information is transmitted to the Issuing Bank (i.e. the Noticee) with the help of the Associations. The information regarding authenticity of the card holder is then sent back to the Merchant Establishment by the Association. The Association has an arrangement with the Issuing Bank (i.e. the Noticee) and the Acquiring Bank separately. A copy of the Client Services and Trademark License Agreement between the Noticee and the Associations is attached hereio and marked as Exhibit B. (iv) The Acquiring Bank makes payment to the Merchant Establishment in respect of the goods and services purchased by the customer after deducting a fee known as the ‘Merchant Discount’. The ‘Merchant Discount’ is the H

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A gross amount of consideration received towards the activities undertaken by the Issuing Bank and the Acquiring Bank. (v) Subsequently, the Association debits the pre-funded account of the Issuing Bank (i.e. the Noticee) on a net settlement B basis (i.e. the Interchange Fee which is the share of the Issuing Bank is retained by the Issuing Bank). (vi) The Issuing Bank, the Acquiring Bank and the Associations each play their own role to ensure that a transaction can be undertaken between the credit card holder and the Merchant C Establishment. (vii) The Issuing Bank subsequently collects the payment from the card holder. The Issuing Bank and Acquiring Bank further make the payment to the Associations and discharge Service tax under reverse charge mechanism on the same. D Proof of payment of Service tax by the Noticee under the reverse charge mechanism is attached hereto and marked as Exhibit C. (viii) The Merchant Discount which is the gross amount received from the Merchant Establishment is subjected to Service E tax as per Section 65B (44) of the Finance Act, 1994 (‘the Act’), in the hands of the Acquiring Bank.” THE PERIOD PRIOR TO 01.07.2012; SECTION 66(33a) DECODED

45Copy pinpoint45. Section 65(33a) was inserted by Finance Act, 2006 w.e.f. F 01.05.2006. As already noticed, credit card services made its first appearance as part of banking and financial services under Section 65(10). Thereafter, it became part of Section 65(12), when it became part of the definition of the words “banking and other financial services” and it is finally, w.e.f. 01.05.2006, that Section 65(33a) made its debut. Section G 65(33a) uses the word “includes any service provided under clauses (i) to (vii)”. I must not be oblivious to the fact that quite apart from credit card, debit card and other payment card service, are also within the scope of Section 65(33a). It is apparent that Section 65(33a)(i) deals with the service provided by a banking company, financial institution, including non-banking financial company, or any other person or other H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 483 BANK N. A. [K. M. JOSEPH, J.]

persons and which entities are described as issuing bank, issuing such card to a card holder. Apparently, this is the provision, which is apposite to capture the charge of service tax on the issuing bank for the service it renders to the card holder. In fact, there is no dispute that in regard to the service rendered to the respondent, in terms of the contract it has entered into, the respondent has been exigible and liable to pay service tax.

46Copy pinpoint46. Now, I move on to clause (iii) of Section 65(33a), which is the pivotal provision. It contemplates any service provided by any person including issuing bank and an acquiring bank to any other person, in relation to the settlement of any amount transacted through such card. The Explanation to the said clause provides that, for the purpose of the sub-clause, acquiring bank has been defined as meaning any banking company, financial institution, including non-banking financial company or any other person, who makes the payment to any person who accepts such card.

47Copy pinpoint47. Let us pause for a moment and examine the scope of Clause D (iii) of Section 65(33a) with the aid of the Explanation. The said provision embraces within its scope any service provided by any person. Any person would include expressly an issuing bank and an acquiring bank. The service may be rendered to any other person. The context is, however, the service rendered must be in relation to settlement of any amount transacted through such card. I am in this case, called upon to consider the case of a credit card. I have already noticed the salient features of a credit card transaction. I have gleaned the five players in the whole transaction. The issuing bank issues the card to the card holder and the recipient becomes the card holder. There is, indeed, privity of contract between them. Other three players are the acquiring bank, the card association, the merchant establishment.

48Copy pinpoint48. When a court examines a law, the court will not start with a presumption that the Legislature is not aware of ground realities and the complexities of transactions. The Legislature, on the other hand, I presume, knows how complex economic transactions are playing out, in fact, on the ground. Proceeding on the basis that Legislature has, indeed, divined what a credit card transaction entails, and who the players are, the different limbs of Section 65(33a), would assume meaning.

49Copy pinpoint49. In the Explanation to Section 65(33a)(iii), in the context of the definition of the word “acquiring bank” for the purpose of clause (iii) of H

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A Section 65(33a), the acquiring bank is to be understood as the enumerated entities or any other person, who makes the payment to any person, who accepts such card. It is clear that in consonance with the very case of the respondent, that the expression “any person who accepts such card”, would be the merchant.

50Copy pinpoint50. Analysing Clause (iii) further, I notice that the Legislature has included both issuing bank and an acquiring bank. In other words, the word used in between issuing bank and an acquiring bank is not “or”. In other words, Section 65(33a) contemplates service provided by any person including an issuing bank and an acquiring bank. It is service to any other person. C

51Copy pinpoint51. This means the service cannot be one rendered by an issuing bank to an acquiring bank. It must be service rendered by an issuing bank and an acquiring bank to any other person in relation to settlement of any amount transacted through such card. IS THERE ANY SERVICE PROVIDED BY THE D RESPONDENT AS ISSUING BANK IN A CREDIT CARD TRANSACTION?

52Copy pinpoint52. I have examined the features of a credit card transaction. Certain facts are not in dispute. When the card holder goes to a merchant and purchases goods and services utilising the credit card, it in its train sets into motion, on the electronic platform, the following events: The transaction data from the diagram produced by the respondent which I have adverted to is transmitted instantaneously from the merchant through the appliance installed in the shop of the merchant by the acquiring bank. It goes through the acquiring bank and the card network and it reaches issuing bank. The entitlement of the card holder being found, the issuing bank approves the purchase after process check and it goes back through the card network to the acquiring bank and from there it is forwarded to the merchant establishment. The transaction based on the credit card goes through. Lastly, the transaction receipt is signed. G It is not disputed that the issuing bank earns Rs.2/- in the illustrated transaction of Rs.100/-. It is again clear that this amount does not enter the measure of service tax, which the issuing bank pays on the service rendered by the bank to the card holder. There is no such case. It is not in dispute that both the issuing bank and an acquiring bank have entered into contracts with the card association. Equally, there is

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 485 BANK N. A. [K. M. JOSEPH, J.]

privity of contract between the issuing bank and the card holder and there is also privity of contract between the acquiring bank and the merchant establishment.

53Copy pinpoint53. It is the very case of the respondent, in the example of transaction of Rs.100/-, that card association debits the account of the respondent to the amount of Rs.98/-. This amount of Rs.98/- is remitted to the acquiring bank. Rs.2/- remains ‘undebited’ in the account of the issuing bank and is, undoubtedly, the interchange fee. The acquiring bank, which receives Rs.98/-, remits Rs.94.30 allegedly to the merchant establishment. The acquiring bank retains Rs.3/-, which is the consideration for ‘its’ service. The respondent, as issuing bank, retains Rs.2/-. The reason why the merchant establishment receives Rs.94.30 C and not Rs.95/- that is, Rs.5/-, consisting of the value of the service rendered by acquiring bank and Rs.2/- for the interchange fee earned by the respondent as issuing bank, is that allegedly, 70 paisa is purportedly paid as service tax on the gross consideration of Rs.5. It is clear that under the Explanation to Section 65(33a)(iii) of the Act, the acquiring D bank is treated as the bank which makes the payment to the person who accepts such card, which I have already found to be the merchant establishment. The Legislature has contemplated that apart from an acquiring bank, any other person including an issuing bank, may render service in relation to the settlement of the amount transacted through such credit card. E

54Copy pinpoint54. 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.

55Copy pinpoint55. 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 H

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A 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 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.

56Copy pinpoint56. 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. F

57Copy pinpoint57. 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 G 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 H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 487 BANK N. A. [K. M. JOSEPH, J.]

there is the risk undertaken, in the first instance, of making available the A funds to satisfy and settle the amount transacted through the card to the merchant establishment. SECTIONS 67 TO 70; WHO IS LIABLE TO PAY SERVICE TAX, OBTAINED REGULATION AND FILE RETURN? B

58Copy pinpoint58. As far as the value of the taxable service is concerned, this is a matter which is governed by Section 67 of the Act. Since Section 66 imposed service tax on the value of the taxable service, Section 67 provides for how the value of the taxable service is to be determined. Section 67(1)(i) contemplates that in case where the provision of service is for a consideration in money, then the value will be the gross amount charged by the service provider for such service provided or to be provided by him. Section 67(1)(ii) deals with a situation where the provision of service is for consideration not wholly or partly consisting in money. Section 67(1)(iii) deals with a case where the consideration is not ascertainable. In such a case, the amount is to be determined in the manner prescribed by the Rules. Sub-section (3) declares that any amount received towards the taxable service before, during the service, and the provision of service shall be included in the gross amount. Sub-section (4) proceeds to declare that subject to provisions of sub-section (1), (2) and (3) the value shall be determined as may be prescribed. The E Explanation Clause (C) to Section 67, as amended by the Finance Act, 2008, declares that gross amount charged includes, payment by cheque, credit card, deduction from account and any form of payment by issue of credit note or debit note or book adjustment, inter alia.

59Copy pinpoint59. 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 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 H

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A 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.

60Copy pinpoint60. The charge of service tax under section 66 was on the value of taxable services as enumerated in Section 65(105). The measure of the tax is found located in Section 67. The person liable to pay the tax is governed by Section 68 and such person who is liable to pay service tax under Section 68 is also liable to get himself registered under Section 69 read with the Rules and such person that is the person liable to pay service tax must also assess the tax and file Return under Section 70, as prescribed in the Rules.

61Copy pinpoint61. I have already explained the scope of Sections 67 to 70. 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, F 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 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

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 489 BANK N. A. [K. M. JOSEPH, J.]

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 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. H

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62Copy pinpoint62. 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.

63Copy pinpoint63. Admittedly, the Respondent has not paid any service tax on B the said amount.

64Copy pinpoint64. In the context of Section 67 of the Act, I queried Shri Arvind Datar, learned Senior Counsel as to what would happen if a Notification is issued under Section 93 of the Act, exempting the acquiring bank from the levy of service tax payable by acquiring bank under Section 65(33a)(iii). C Section 93 provides power to exempt from service tax on taxable services of any specified description, the whole or any part of the service tax leviable thereon. What would be the position, if the Central Government exempted the acquiring bank, specifically, from the service tax payable by it for the service within the meaning of Section 65(33)(iii)? Would the amount of interchange fee earned by the issuing bank, then be exempt D and can the issuing bank seek shelter under such a Notification? This brings into sharper focus, the fact that the amount payable by the acquiring bank as service provider, is different from the amount payable by the issuing bank, the nature of the services being different and the measure of tax also different. E IS INTERCHANGE FEE INTEREST AND THEREFORE NOT CONSIDERATION FOR SERVICE?

65Copy pinpoint65. Shri Arvind P. Datar, learned Senior Counsel, appearing on behalf of the Respondent, contended that interchange fee is actually akin to interest and it is not to be treated as a consideration for any service. He drew inspiration from Judgment of the U.S. Tax Court in Capital One Financial Corporation and Subsidiaries v. Commissioner, 133 TC No.8 (September 21, 2009). The decision was rendered under the law relating to income-tax. The statutory framework contained in the Act is different from the law which was considered by the Court. It is inapposite to lift the principle from the leaves of foreign Judgment and apply it out of context.

66Copy pinpoint66. 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 H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 491 BANK N. A. [K. M. JOSEPH, J.]

the respondent-bank. Undoubtedly, under Section 18, the tax paid on A interest under the Interest Tax Act can be 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. B

67Copy pinpoint67. While on the question of interest, I may notice the discussion of this Court on the concept of interest in the Judgment in Ferro Alloys Corpn. Ltd. v. A.P. State Electricity Board and another7: “129. Strictly speaking, the word “interest” would apply only to two cases where there is a relationship of debtor and creditor. A C lender of money who allows the borrower to use certain funds deprives himself of the use of those funds. He does so because he charges interest which may be described as a kind of rent for the use of the funds. For example, a bank or a lender lending out money on payment of interest. In this case, as already noted, there is no relationship of debtor and creditor. D

130. We may now refer to Halsbury, 4th Edn., Vol. 32, para 108: “108. When interest is payable at common law.— At common law interest is payable (1) where there is an express agreement to pay interest; (2) where an agreement to pay interest can be E implied from the course of dealing between the parties or from the nature of the transaction or a custom or usage of the trade or profession concerned; (3) in certain cases by way of damages for breach of a contract (other than a contract merely to pay money) where the contract, if performed, would to the knowledge of the parties have entitled the plaintiff to receive interest. F Except in the cases mentioned, debts do not carry interest at common law.” Consumption security deposit does not fall under any of the categories mentioned above. Para 109 says: G “Equitable right to interest. — In equity interest may be recovered in certain cases where a particular relationship exists between the creditor and the debtor, such as mortgagor and

7 1993 Supp (4) SCC 136 H

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A mortgagee, obligor and oblige on a bond, personal representative and beneficiary, principal and surety, vendor and purchaser, principal and agent, solicitor and client, trustee and beneficiary, or where the debtor is in a fiduciary position to the creditor. Interest is also allowed on pecuniary legacies not paid within a certain time, on the dissolution of a partnership, on the arrears of an annuity where there has been misconduct or improper delay in payment, or in the case of money obtained or retained by fraud. It may also be allowed where the defendant ought to have done something which would have entitled the plaintiff to interest at common law, or has wrongfully prevented the plaintiff from doing something which would have so entitled him.” This paragraph is also inapplicable to the present case.”

68Copy pinpoint68. The said view has been relied upon in judgment of this Court in State of Karnataka and others v. Karnataka Pawn Brokers Association and others8. In the said judgment, I may notice the following: D “Issue (iii)

29. To decide this issue we must first understand the concept of interest. It has been repeatedly held that interest is basically compensation for the use or retention of money. In Halsbury’s E Laws of England, 4th Edn., Vol. 32, “interest” has been defined as follows: “127. Interest in general. —Interest is the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another. Interest accrues from day to day even if F payable only at intervals, and is, therefore, apportionable in respect of time between persons entitled in succession to the principal.”

30. According to Law Lexicon, by P. Ramanathan Aiyar, 3rd Edn. (2005) (p. 2402) Vol. 2:

G “ ”Interest” means the time value of the funds or money involved, which, unless otherwise agreed, is calculated at the rate and on the basis customarily accepted by the banking community for the funds of money involved.”

8 (2018) 6 SCC 363 H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 493 BANK N. A. [K. M. JOSEPH, J.]

31. In Words and Phrases Permanent Edition, Vol. 22 p. 148, A “interest” means: “(i) “Interest” is compensation for loss of use of principal. Jersey City v. Zink [Jersey City v. Zink, 44 A 2d 825 : 133 NJ Law 437 (1945)] , A 2d p. 828". (ii) “Interest” means compensation for the use or forbearance of money. Commr. of Internal Revenue v. Meyer [Commr. of Internal Revenue v. Meyer, 139 F 2d 256 (6th Cir 1943)], F 2d at p. 259.”

69Copy pinpoint69. 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 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 E 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 F 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. G THE PERIOD AFTER 01.07.2012

70Copy pinpoint70. With the introduction of Section 66 B accompanied by the definition of service under Section 65B (44) and the legislature further providing for the negative list of services which stood excluded from the H

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A levy of service tax in Section 66 D, the question would only be whether there is any service and whether it is excluded under Section 66 D. The relevant part of Section 65 B (44) to the dispute in question reads as follows: “(44) “service” means any activity carried out by a person for B another for consideration, and includes a declared service, but shall not include – (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or C (ii) such transfer, delivery or supply of any goods which is deemed to be a sale withing the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; D (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force.” The Explanation 2 originally read as follows; E “Explanation 2.- For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged.” F The same came to be substituted in 2015 by the following: - “Explanation 2.- For the purposes of this clause, the expression ‘transaction in money or actionable claim’ shall not include – (i) Any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.”

71Copy pinpoint71. I have already found in the context of Section 65(33a) that Legislature has recognised a wide spectrum of services which are provided by different players in relation to a credit card transactions,

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 495 BANK N. A. [K. M. JOSEPH, J.]

inter alia. I have further found that the issuing bank does indeed perform services without which the credit card transactions become impossible. No doubt under the new dispensation the four elements in order to constitute service are (i) an activity, (ii) by the service provider, (iii) to a service recipient and (iv) there must be consideration. This is undoubtedly apart from any declared service. I am of the clear view that all the ingredients in this case stand satisfied in the settlement of the amount transacted under the credit card apart from the service which is performed by the issuing bank qua the card holder which constitutes a separate service. The issuing bank under agreement with the card association indulges in the activities which consists of being part of the system which begins with the approval of the transactions which immediately culminates in the sale of goods or services by the merchant establishment to the card holder without payment by him and further by taking the risk of maintaining the requisite funds by which ultimately the acquiring bank makes available the amount to the merchant establishment. WHETHER CREDIT CARD TRANSACTION A D TRANSACTION IN MONEY?

72Copy pinpoint72. The only argument which is raised otherwise is that it is transaction in money and therefore it is excluded from the definition of the word service. In the decision rendered by the Delhi High Court 2013 (30) S.T.R. 347, in the context of transaction of chit, the Court, inter E alia, held as follows: “In a mere transaction in money or actionable claim, no service is involved; there is just the payment and receipt of the money. xxx xxx xxx F A mere transaction in money represents the gross value of the transaction. But what is chargeable to service tax is not the transaction in money itself since it can by no means be considered as a service. xxx xxx xxx G A clue to a proper interpretation of the exclusionary part of the definition is embedded in Explanation2. This Explanation carves out an exception to the exclusionary part of the definition by providing that any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency H

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A or denomination to another form, currency or denomination for which a separate consideration is charged shall not be considered as a transaction in money.” xxx xxx xxx

73Copy pinpoint73. 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 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, I am of the view that 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. IMPACT OF NOT CHALLENGING ABN AMRO F (SUPRA)

74Copy pinpoint74. The contention of the appellant is that appellant not having challenged the aforesaid decision, it is precluded from challenging the Order of the Tribunal following the said Order.

75Copy pinpoint75. In this regard, I notice and consider the following case law G relied upon by the respondent.

76Copy pinpoint76. In Union of India and others v. Kaumudini Narayan Dalal and another9, noticing that the Revenue had accepted the Judgment of the High Court, it was found that it was not open to the Revenue except

9 H (2001) 10 SCC 231

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 497 BANK N. A. [K. M. JOSEPH, J.]

the assessee in that case and challenge its correctness in the case of other assessees, without just cause.

77Copy pinpoint77. In Commissioner of Central Excise v. Tata Engineering and Locomotives Co. Ltd.10, undoubtedly, in paragraph-9, the Court held as follows: “9. Apart from the question of interpretation of the notification, the appellant has not offered any explanation why the decision of the Tribunal dated 2-9-1998 in Bajaj Auto case in respect of an earlier year allowing the benefit of the 1986 notification in respect of the gauges manufactured and captively used in the factory of M/s Bajaj Auto, had not been challenged. We can, in the circumstances, conclude that the Tribunal’s interpretation was accepted by the Revenue and they are precluded from taking an inconsistent stand now. (See Union of India v. Kaumudini Narayan Dalal [(2001) 10 SCC 231 : (2001) 249 ITR 219] .)”

78Copy pinpoint78. The question involved in the said case, was whether the respondent assessees were entitled to the benefit of the Exemption Notification having regard to the terms of the Explanation contained in the Notification. This Court, proceeded to consider the case on merits and found that the goods in question were covered by the exemption Notification. It is thereafter that what has been stated in paragraph-9, was found to be reason to supplement the decision to uphold the impugned E Order.

79Copy pinpoint79. In Birla Corpn. Ltd. v. Commissioner of Centra Excise11, the Court noted the submission of the appellant that in several decisions followed, the views of the Tribunal in two cases, referred to therein, and the law was fully settled. We notice the following paragraph: F “5. In the instant case the same question arises for consideration and the facts are almost identical. We cannot permit the Revenue to take a different stand in this case. The earlier appeal involving identical issue was not pressed and was therefore, dismissed. The respondent having taken a conscious decision to accept the G principles laid down in Pepsico India Holdings Ltd. [(2001) 130 ELT 193 : (2001) 42 RLT 800 (cegat)] cannot be permitted to

10 (2003) 11 SCC 193 11 (2005) 6 SCC 95 H

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A take the opposite stand in this case. If we were to permit them to do so, the law will be in a state of confusion and will place the authorities as well as the assessees in a quandary.” The Court, in fact, allowed the appeal of the assessee.

80Copy pinpoint80. In Jayaswals NECO Ltd. v. Commissioner of Central Excise, Nagpur12, an appeal was filed by the assessee. This Court found that the Department had accepted the decision of the CGAT concerning a Notification granting exemption and it purported to find that the Notification involved in the case before it, was the same, in content. Following the Order of the CEGAT, accepted by the Department, the C Court did not permit the Revenue to take a different stand.

81Copy pinpoint81. I have noticed the Order passed in ABN Amro (supra). I would follow the course, which was adopted by this Court in Tata Engineering and Locomotives Co. Ltd. (supra). I have already referred to the relevant paragraphs of the Order of the decision in ABN Amro (supra). In particular, D I have noticed, what has been held by the Tribunal in paragrapah-8. I am of the clear view that the view taken therein is completely incompatible with the statutory scheme under the Act, and the only conclusions possible, regarding the role of the issuing bank are, which I have already arrived at. In fact, I notice that even in the Written Submissions, it is stated, inter alia, very fairly, as follows: “8.2 Although the observations in Para 8 may not be entirely appropriate, and are eschewed, the finding that service tax cannot be levied twice, which is based on the Division Bench judgment of the Allahabad High Court, will still stand. Further, the finding that the extended period of limitation cannot be invoked will also be applicable.” I have also noted the stand in the Written Submissions that under Section 67, both the acquiring bank and the issuing bank are service providers. It is also stated in the Written Submissions that, as under G Section 65(33a)(iii), the service has been provided by both the issuing bank and the acquiring bank and charged accordingly. I will deal with the aspect relating to double taxation and the extended period of limitation separately.

12 H (2007) 13 SCC 807

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 499 BANK N. A. [K. M. JOSEPH, J.]

82Copy pinpoint82. However, as regards the exigibility of the respondent as issuing bank to service tax is concerned, I am of the view that the reasoning in paragraph-8 of the Order of the Tribunal, at all, does not commend itself as laying down the correct law.

83Copy pinpoint83. No doubt, the respondent does point out that the contention of the learned Additional Solicitor General that no Appeal was preferred because there was issue of limitation/delay in the ABN Amro (supra) case and this is stated to be incorrect. It is stated that Appeal was filed within time. In the Appeal, one of the grounds taken is the premise on which ABN Amro (supra) was decided was different from the case of the appellant. It was also pointed out that the premise in the said case was that the fact of the acquiring bank paying service tax was not disputed by the Department. I would think that, in the circumstances of the case, I cannot reject the Appeals only on the ground that no Appeal was carried against ABN Amro (supra). DEVIATION FROM SHOW CAUSE NOTICE [NUMBER ONE]; D

84Copy pinpoint84. 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 H

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A 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, I do not, in the facts of this case, think that the respondent should succeed on this point.

85Copy pinpoint85. In this regard, it is relevant in this case to notice the stand of the respondent in the Written Submission before this Court, which acknowledges that the issuing bank and the acquiring bank are service providers within the meaning of Section 65 (33a)(iii). CERTAIN CIRCULARS; DOUBLE TAXATION

86Copy pinpoint86. 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 following was what was laid down: “2. The matter has been examined in the Board. It is hereby clarified that any service (transaction) can be taxed only once, even if it appears to fall under two or more categories. Therefore, before levying service tax it is essential to determine under which category a particular service falls. It should be kept in mind that service tax is a tax on the service provided and is recovered from the service provider (in some cases even from the service recipient). The position is akin to Central Excise duty which is charged on manufactured goods. Just as Central Excise duty cannot be charged twice on the same goods under two separate chapters/ headings/sub-headings of the Central Excise Tariff, so also Service tax cannot be charged twice on the same service (transactions). However, one service provider may provide more than one taxable service. In such cases, the service provider need only take one registration, but it shall be endorsed for all the taxable services and tax liability will have to be discharged for each of the taxable services separately.”

87Copy pinpoint87. 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 card holder, the respondent is providing taxable service to the card holder. That apart, if, under Section 65 (33a) of the Act, the

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 501 BANK N. A. [K. M. JOSEPH, J.]

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.

88Copy pinpoint88. As far as Circular dated 17.12.2004 is concerned, it related to service tax payable in respect of service provided to a customer by a goods transport agency in relation to transport of goods by road in a goods carriage. Paragraph-4.4 provided that Notification 35/2004 dated 03.12.2004 provided for certain categories of persons, which made payment towards freight being liable to pay the service tax. Paragraph- D 4.5 provided that in cases other than those mentioned in paragraph-4.4, service tax is to be paid by the goods transport agency. It is thereafter that the paragraph relied upon by the respondent, viz., paragraph 5.7 provided as follows: “5.7. If service tax due on transportation of a consignment has been paid or is liable by a person liable to pay service tax, service tax should not be charged for the same amount from any other person, to avoid double taxation.”

89Copy pinpoint89. The context for issuing the just hereinbefore mentioned instruction, was the fact that there is only one service and paragraphs- 4.4 and 4.5 were mutually exclusive categories, and yet, if payment was made by one category, there would be clearly double taxation, if again, on the same service, the person in the other category, was made liable to pay tax.

90Copy pinpoint90. While on double taxation, I may notice the Judgment of this Court in Sri Krishna Das v. Town Area Committee13: G “28. We do not find any merit in the appellant’s submission that there was double taxation in this case. The expression “double taxation” is often used in different senses, namely, in its strict

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A legal sense of direct double taxation and in its popular sense of indirect double taxation. Double taxation in the strict legal sense means taxing the same property or subject matter twice, for the same purpose, for the same period and in the same territory. To constitute double taxation, the two or more taxes must have been (1) levied on the same property or subject matter, (2) by the same government or authority, (3) during the same taxing period, and (4) for the same purpose. “There is no double taxation, strictly speaking” says Cooley, “where (a) the taxes are imposed by different States, (b) one of the impositions is not a tax, (c) one tax is against property and the other is not a property tax, or (d) the double taxation is indirect rather than direct.”

91Copy pinpoint91. In Union of India (UOI) and others v. Tata Iron and Steel Company Limited, Jamshedpur14, the assessee used duty paid ingot moulds and bottom stools, when they became unfit and remelt it with admixture with other non-duty paid scraps and hot metal in the manufacture of steel ingots. The claim of the assessee for exemption in terms of Notification, was rejected. The High Court granted relief. This Court held as follows: “23. The High Court rightly held that the contention of the Revenue fails on two broad grounds. First, there cannot be double taxation on the same article. Counsel for the Revenue gave the example of excise duty on motor cars, in spite of the fact that there was duty on tyres and duty on metal sheets. The analogy is misplaced. In such cases the duty is on the end product of motor car as a whole. The duty on tyres and the duty on metal sheets do not enter the area of duty on motor car. Second, Notification No. 30/ F 60 grants exemption to duty paid pig iron. The High Court rightly said that the Notification does not say that exemption is granted only when duty paid pig iron is used and that the exemption would not be available if duty paid pig iron is mixed with other non duty paid materials. If the intention of the Government were to exclude the exemption to duty paid pig iron when mixed with other materials G then the notification would have used the expression “only” or “exclusively” or “entirely” in regard to duty paid pig iron. The object of the notification was to grant relief by exempting duty paid pig iron.”

14 H (1976) 2 SCC 123

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 503 BANK N. A. [K. M. JOSEPH, J.]

EFFECT OF SERVICE TAX BEING A VALUE ADDED A TAX

92Copy pinpoint92. 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 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, I am unable 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.

93Copy pinpoint93. 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. G SHOW CAUSE NOTICE: DIVERGENCE FROM THE ORDER OF THE COMMISSIONER [NUMBER TWO];

94Copy pinpoint94. 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, H

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A 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 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.

95Copy pinpoint95. 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.

96Copy pinpoint96. 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 fact, under the ground of ‘Double Taxation’, being tabooed, in paragraph-74, it is, inter alia, stated as follows: H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 505 BANK N. A. [K. M. JOSEPH, J.]

“74. The Impugned Order finds that the Appellant has not furnished any information in support of their claim of Service Tax being already paid on the interchange Fees by the Acquiring Bank on the Merchant Discount. IN this regard, the Appellant craves leave to refer to and rely on the relevant documents if and when produced. However, the Appellant contends that it requires to be appreciated that the Appellant does not have any privity of contact with the Acquiring Bank, and procuring the said documents will be challenging. While the Tax Department has the ability to obtain this information directly from the Acquiring Bank. The Tax Department has however not sought it or produced anyinfo4rmation / document or even alleged that the Acquiring Bank is not paying service tax on the Merchant Discount. The Impugned Order, in failing to appreciate this aspect has put the Appellant to hardship, resulted in double taxation, and also is contrary to the settled legal principles as also in the teeth of the cited decisions and is thus, erroneous and unsustainable, and therefore liable to be set aside.” D

97Copy pinpoint97. I may also further notice that 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 I have 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, which is as follows: E

“5.11 Be that as it may, we find that in a very recent decision of the Tribunal in the case of ABN Amro (supra), it has been categorically held that the amount received by the appellant does not qualify as credit card services that when acquiring bank has discharged service tax liability on the entire amount, no service F tax is payable by the appellant and that the amount offered by the appellant does not qualify a credit. …”

98Copy pinpoint98. Thereafter, reference is made to paragraphs-6 to 8 of ABN Amro (supra), which I have already referred to above. G

99Copy pinpoint99. On the 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. H

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100Copy pinpoint100. 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. WHETHER THE EXTENDED PERIOD OF LIMITATION IS AVAILABLE IN REGARD TO THE DEMAND B UNDER SHOW CAUSE NOTICE DATED 24.04.2013?

101Copy pinpoint101. The said Show Cause Notice relates to the period October, 2007 to June, 2012. The normal period within which the power under Section 73 of the Finance Act is exercised is 18 months from the relevant date. However, under the provisions of Section 73(4) if there is wilful C suppression by a person then the period is enlarged to five years. The contention of the respondent was that there was no positive act by it. There was only mere inaction. It was further contended that the department was aware of the receipt of interchange fee by the respondent as issuing bank. There were audits. These arguments have been rejected by the Commissioner by relying on the law laid down by this Court in D Association of Leasing & Financial Service Companies (supra). The aforesaid decision was rendered under Section 11 A of the Act. The relevant provisions of Section 11 A in this regard are pari materia with the corresponding provisions in Section 73 of the Act. Suppression is found in both statutes as a ground to extend the period. In the aforesaid judgment of this Court has held that the period begins with knowledge by the department.

102Copy pinpoint102. While on suppression, I may notice the judgment of this Court again rendered under Section 11A of Central Excise Act and reported in Bajaj Auto Ltd., Waluj, Aurangabad (supra). In the said case, I need to notice the following paragraphs: “15. Section 11-A of the Act empowers the Central Excise Officer to initiate proceedings where duty has not been levied or short- levied within six months from the relevant date. But the proviso to Section 11-A(1) provides an extended period of limitation provided the duty is not levied or paid or which has been short-levied or short-paid or erroneously refunded, if there is fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty. The extended period so provided is of five years instead of six months. Since the proviso extends the period of limitation from six months to five years, it

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 507 BANK N. A. [K. M. JOSEPH, J.]

needs to be construed strictly. The initial burden is on the A Department to prove that the situation visualised by the proviso existed. But the burden shifts on the assessee once the Department is able to produce material to show that the appellant is guilty of any of those situations visualised in the section.

16. Interpreting this provision, this Court in CCE v. Chemphar B Drugs and Liniments [(1989) 2 SCC 127 : 1989 SCC (Tax) 245] held: (when the period prescribed was six months prior to it being made one year by the Finance Act, 2000 with effect from 12-5- 2000): (SCC p. 131, para 9) “9. … In order to make the demand for duty sustainable beyond C a period of six months and up to a period of 5 years in view of the proviso to sub-section (1) of Section 11-A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the D Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is E saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case.” F

(Emphasis supplied)

17. In Cosmic Dye Chemical v. CCE [(1995) 6 SCC 117] it is held: (SCC p.119, para 6) “6. Now so far as fraud and collusion are concerned, it is evident G that the requisite intent i.e. intent to evade duty is built into these very words. So far as misstatement or suppression of facts are concerned, they are clearly qualified by the word ‘wilful’ preceding the words ‘misstatement or suppression of facts’ which means with intent to evade duty. The next set of words ‘contravention of H

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A any of the provisions of this Act or Rules’ are again qualified by the immediately following words ‘with intent to evade payment of duty’. It is, therefore, not correct to say that there can be a suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11-A. Misstatement or suppression of fact B must be wilful.” (Emphasis supplied)

18. In Anand Nishikawa Co. Ltd. v. CCE [(2005) 7 SCC 749] this Court has observed: (SCC p. 759, para 27)

C “27. … we find that ‘suppression of facts’ can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done and not that he must have done, would not render it suppression. It is settled law that mere failure to declare does D not amount to wilful suppression. There must be some positive act from the side of the assessee to find wilful suppression.” (Emphasis supplied) “19. In our view, on a reading of the relevant provision the extended period of limitation as provided by the proviso to Section E 11-A(1) of the Act can only be invoked when there is a conscious act of either fraud, collusion, wilful misstatement, suppression of fact, or contravention of the provisions of the Act or any of the Rules made thereunder on the part of the person chargeable with duty or his agent, with the intent to evade payment of duty. In the present case, the Tribunal while considering this issue has not stated whether or not there were any such circumstances which would not allow the Revenue to invoke the extended period of limitation. It only observes in its order that since both the assessees are situated under the jurisdiction of the same division and as such it cannot be reasonable to conclude that the Revenue was not aware of the transactions. Since this is not what is envisaged under the proviso to Section 11-A(1) of the Act, we cannot agree with the reasoning and the conclusion reached by the Tribunal.”

103Copy pinpoint103. I further notice that in the said case this Court remanded the matter back to the tribunal observing that the tribunal is the final fact- H finding authority.

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 509 BANK N. A. [K. M. JOSEPH, J.]

104Copy pinpoint104. 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.

105Copy pinpoint105. 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 decisions relied 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.

106Copy pinpoint106. 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.

107Copy pinpoint107. In this case, I would follow the course adopted by this Court in Commissioner of Central Excise, Aurangabad v. Bajaj Auto Ltd., E Waluj, Aurangabad Through Its Vice-President (Materials) and others 15.

108Copy pinpoint108. I am of the view that as the respondent has also a case that it was not provided with an opportunity to prove that the acquiring bank had discharged the tax‘ liability on the interchange fee also, an opportunity F should be granted to the respondent to establish the same. I have also found that the Tribunal has not returned a finding as regards the question whether there was wilful suppression by the respondent in regard to part of the period covered by Notice dated 24.04.2013. I would think that this is a matter which calls for finding by the Tribunal. G

109Copy pinpoint109. Therefore, the upshot of the above discussion is as follows: I. I find that the respondent, as issuing bank, was providing service, as found by the Commissioner;

15 (2010) 13 SCC 117 H

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A 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. I reject the contention of the respondent that interchange fee is to be treated as interest and, therefore, not taxable B under the Act; IV. I hold that 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; C V. 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; VI. In the facts of this case, I decline to dismiss the Appeal only on the ground that no Appeal was carried against the D Order in ABN Amro (supra); 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; E 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 F bank, as found by me, 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; G 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 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 H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 511 BANK N. A. [K. M. JOSEPH, J.]

respondent bank should be called upon to pay the service A 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 B 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.

110Copy pinpoint110. As regard, the question of interest and penalty is concerned, C no doubt, the case of the respondent is that there was an interpretational issue. The practice in the banking industry, is relied on. In this regard, I would think that if the respondent is able to establish that the acquiring bank, indeed, discharged the tax liability on the interchange fee also, then, the respondent should not be visited with interest and penalty. Should it be otherwise, demand for interest and penalty will stand. D

111Copy pinpoint111. Resultantly, on the basis of the aforesaid findings, I allow the Appeals and remand the matter back to the Tribunal for considering: a. Whether the finding of the Commissioner, which was challenged by the respondent, that there was suppression, in relation to the period covered by the Show Cause Notice dated 24.04.2013, was justified or not? In case it was found that it was not justified, it is for the Tribunal to pass appropriate Orders; b. The Tribunal will provide an opportunity to the respondent to produce material to show that the acquiring bank had discharged the liability of the respondent as issuing bank with regard to the interchange fee for the period covered by the Show Cause Notices. Toward this end, I make it clear that the Tribunal will be free to permit the respondent to produce the material before the Commissioner and to call for a finding from the Commissioner; c. It will be open to the Tribunal to call upon the appellant to call for the records from the acquiring bank to arrive at a proper finding in this regard; H

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A d. If the amounts are seen paid by the acquiring bank, then, necessarily, the Orders passed by the Commissioner will stand set aside. Conversely, should it not be proved that payment was made, the Orders of the Commissioner will stand subject to the finding relating to the availability of extended period under Section 73 in relation to the SCN B dated 24.04.2013.

112Copy pinpoint112. The Appeals are allowed as above. There will be no order as to costs.

C S. RAVINDRA BHAT, J.

1. Having had the benefit of perusing the judgment authored by Justice Joseph, I find that I am respectfully, unable to agree on some of the reasoning and conclusions arrived at, and am therefore, penning my separate and dissenting judgment with regards to this matter.

D 2. The then Union Finance Minister, while first introducing service tax, in 1994 said that the rationale for its introduction, was that though the services sector accounted for 40% of the GDP, it was never taxed. Based on the recommendations of the tax reforms committee16, the Finance Act, 1994 (hereafter ‘the Act’) imposed service tax of 5% initially only on 3 services namely telephone bills, non-life insurance and tax E brokers. From this regime of levy on only 3 services the levy progressively increased to - in 1996, 3 more services (namely advertising agencies, courier agencies and radio pager services); and in 1997, to 15 wherein services like air travel agents, mandap keepers, man power recruitment agencies were brought into the tax fold.

F 3. In 200317, Parliament inserted Article 268A into the Constitution, which provides that taxes on services shall be charged by the Union of India and be appropriated by the Union and the States. A new Entry 92C too was introduced in the Union List for the levy of taxes on services. The number of services subjected to the levy, burgeoned to 119 in 2011-

G 12. With effect from 2012, there has been a paradigm shift in the levy of service tax - rather than levying tax on enumerated services, tax is imposed on all services except those listed in the negative list.18 The

16 Dr. Raja Chelliah Committee on Tax Reforms 17 By Constitution (Eighty- eighth Amendment) Act, 2003 18 H Listed in the newly introduced Section 66D

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 513 BANK N. A. [S. RAVINDRA BHAT, J.]

negative list, in 2012 contained 39 different services exempt from service A tax. Since then, this list has been modified each year.

4. Section 65 - as it stood originally, contained an almost exhaustive list of definitions, meant to delineate activities that were to be subjected to service tax levy. Each of these definitions were, in turn, also specifically marked as a “taxable service” under various sub-clauses of Section 65 B (105). Service tax was made applicable on “banking and other financial services” (hereafter ‘BOFS’) from 16 July 2001. The relevant portions of the definition of BOFS – by Section 65 (10) as it originally stood, is reproduced below: “banking and financial services” means the following C services provided by a banking company or a financial institution including a non-banking financial company, namely:- … (ii) credit card services; D ****** *****” By Finance Act, 2003 a wide range of activities were covered under the definition of BOFS in Section 65(12) - which, when enacted, read as follows: E “(12) “banking and other financial services” means (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or 2[commercial concern], namely :— F (i) financial leasing services including equipment leasing and hire-purchase; Explanation.—For the purposes of this item, “financial leasing” means a lease transaction where— (i) contract for lease is entered into between two parties for G leasing of a specific asset; (ii) such contract is for use and occupation of the asset by the lessee; (iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and H

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A (iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment;] (ii) credit card services; (iii) merchant banking services; B (iv) Securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing; (v) asset management including portfolio management, all forms of fund management, pension fund management, 6[custodial, depository and trust services, (vi) *********** (ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts;”

5. On 1 May 2006, the entry for credit card services in the Act E was omitted [from the definition of “banking and financial services”, i.e. sub-clause (ii) of Section 65 (12)] and an altogether new taxable service of “credit card services” was introduced [Section 65 (105) (33a)]. Simultaneously, Section 65 (10) was amended. To appreciate the ambit of this new category, the relevant portions of the definition of Section 65 (105) (33a) (‘credit card, debit card, charge card or other payment card service’) are reproduced below: “Section 65 Definitions: In this Chapter, unless the context otherwise requires, (33a) “credit card, debit card, charge card or other payment card service” includes any service provided,— (i) by a banking company, financial institution including non- banking financial company or any other person (hereinafter referred to as the issuing bank), issuing such card to a card holder; H

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 515 BANK N. A. [S. RAVINDRA BHAT, J.]

(ii) by any person to an issuing bank in relation to such card business, including receipt and processing of application, transfer of embossing data to issuing bank’s personalisation agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation; (iii) by any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card. Explanation.—For the purposes of this sub-clause, C “acquiring bank” means any banking company, financial institution including nonbanking financial company or any other person, who makes the payment to any person who accepts such card; (iv) in relation to joint promotional cards or affinity cards or co-branded cards; (v) in relation to promotion and marketing of goods and services through such card; (vi) by a person, to an issuing bank or the holder of such card, for making use of automated teller machines of such person; and (vii) by the owner of trade marks or brand name to the issuing bank under an agreement, for use of the trade mark or brand name and other services in relation to such card, whether or not such owner is a club or association and the issuing bank is a member of such club or association. Explanation. —For the purposes of this sub-clause, an issuing bank and the owner of trade marks or brand name shall be treated as separate persons;”

6. From 01.05.2006 19 (by the same amendment) credit card services, which were covered under a separate category in Section 65 (33a) became subjected to levy as a separate taxable service, by reason of insertion of Section 65 (105) (zzw). That provision reads as follows: 19 Notification No. 15/2006 dated 25.04.2006. H