NON-REPORTABLE 2024 INSC 808 IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8228 OF 2019
COMMISSIONER OF GST AND CENTRAL EXCISE ..... APPELLANT
VERSUS
M/S CITIBANK N.A. ..... RESPONDENT
WITH
CIVIL APPEAL NO. 89 OF 2021
J U D G M E N T SANJIV KHANNA, J.
We have heard the learned counsel appearing for the
parties at some length.
2. The contention of the Revenue is that the acquiring bank
should have paid service tax on the Merchant Discount Rate 1
minus the interchange fee, and the issuing bank should have
paid service tax on the interchange fee.
3. We are of the view that the judgment and reasoning given by
S. Ravindra Bhat, J. is acceptable and it is in accordance
Signature Not Verified with the provisions of Clause (iii) of Section 65 (33a) of Digitally signed by babita pandey Date: 2024.10.22 17:05:02 IST Reason:
1 For short, “MDR”.
1 Civil Appeal No. 8228/2019 etc.
the Finance Act, 19942.
4. S. Ravindra Bhat, J. rightly observes that as per Section
65(33a) of the Act, seven distinct heads of credit card
services were sought to be taxed, the idea being to broaden
the coverage of the species of services into taxation net.
Clause (iii) thereof applies to service by any person, which
includes service by the issuing bank and the acquiring bank.
The use of the word ‘and’ in conjuncture is indicative of the
legislative intent. MDR is charged/levied by the acquiring
bank at the first point in time and subsumes both the
acquiring bank fee and the interchange fee of the issuing
bank, as well as the platform fee. It is the sum total of the
three. The aforesaid charge occurs first in point of time and
deduction and payment of service tax at this stage is
beneficial to the Revenue. It is not the case of the Revenue
that payment by the acquiring bank to the issuing bank, known
as interchange fee, is separately chargeable, in addition to
the service tax on the MDR.
5. To support the conclusion, S. Ravindra Bhat, J. has said
that, in reality, there is one unified service which is
rendered to the consumer, that is, the credit card holder,
and the merchant. The subsequent bifurcation in the context
and the nature of the transaction, read with Sections 66 and
68 of the Act and Rule 5(1) of the Service Tax (Determination
2 For short, “The Act.”
2 Civil Appeal No. 8228/2019 etc.
of Value) Rules, 2006, is immaterial as MDR is taxable and
service fee is to be taxed. MDR, as a service, has been taxed
and also paid.
6. We wonder whether the Revenue would have accepted the
bifurcation as argued by them in case the acquiring bank and
the issuing bank had taken the stand which is now taken by
them. While interpreting a tax provision, one must keep in
mind that the legislature ennobles the ease of collection of
tax and payment of tax. These principles, especially when
there is no loss of revenue, can be taken into consideration
for interpreting a provision in case of doubt or debate.
7. It is pertinent to note that even the opinion expressed by
K.M. Joseph, J., while adopting a different interpretation of
Section 65 (33a) of the Act, goes on to hold, vide paragraphs
86 onwards of the judgment, that there should not be double
taxation. However, it has been observed thereafter that the
onus to show that payment of service tax on the entire MDR
was made by the acquiring bank will be on the issuing bank,
that is, the respondent, M/s. Citibank N.A.
8. We would, on the last aspect, observe that the entire data
and details are available with the Service Tax Department and
could have been easily ascertained before issuance of the
show cause notice. Interestingly, the show cause notice
proceeds on the basis that, regardless of the service tax
3 Civil Appeal No. 8228/2019 etc.
paid by the acquiring bank on the full MDR, the issuing bank
would be liable to pay service tax on the proportion of its
share in the MDR, which is the interchange fee.
9. We find that the entire amount of the service tax payable on
the MDR has been paid to the Government and there is no loss
of revenue.
10. Recording the aforesaid, the Reference and appeals are
disposed of, holding that service tax is not separately
payable on the interchange fee, as service tax has been paid
on the MDR.
11. Pending application(s), if any, shall stand disposed of.
..................J. (SANJIV KHANNA)
..................J. (SANJAY KUMAR)
..................J. (R. MAHADEVAN) NEW DELHI; OCTOBER 16, 2024.
