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

A 27. This position did not change even in the amended Section 67 which was inserted on 1-5-2006. Sub-section (4) of Section 67 empowers the rule-making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of B Section 67 is manifest, as noted above viz. the service tax is to be paid only on the services actually provided by the service provider.” Again, in Commissioner of Service Tax & Ors. v. Bhayana Builders Private Limited & Ors38 this court held that the transaction value, i.e., the total value of the service provided, is the gross amount for the purpose of levy of service tax: “A plain reading of Explanation (c) which makes the “gross amount charges” inclusive of certain other payments would make it clear that the purpose is to include other modes of payments, in whatever form received; be it through cheque, credit card, deduction from account, etc. It is in that hue, the provisions mentions that any form of payment by issue of credit notes or debit notes and book adjustment is also to be included. Therefore, the words “in any form of payment” are by means of issue of credit notes or debit notes and book adjustment. With the supply of free goods/materials by the service recipient, no case is made out that any credit notes or debit notes were issued or any book adjustments were made. Likewise, the words, “any amount credited or debited, as the case may be”, to any account whether called “suspense account or by any other name, in the books of accounts of a person liable to pay service tax” would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered by the service provider.

16. In fact, the definition of “gross amount charged” given in Explanation (c) to Section 67 only provides for the modes 38 H (2018) 3 SCC 782

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 561 BANK N. A. [S. RAVINDRA BHAT, J.]

of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term “gross amount charged” to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider.”

35. These decisions – though rendered in different contexts, in my opinion, serve to highlight that the basis for levying service tax, is the total or “gross” value of the amount charged from the service recipient. E In the present case, the MDR is thus the “gross value”; it includes the interchange fee. In the circumstances, since the collection of service tax is by the acquiring bank, which remits it to the revenue, the insistence that both elements should be segregated and separate returns filed reflecting the interchange fee, with respect, serves no purpose other than increasing paperwork, and burdening both banks and revenue officials with more work. If it is the aggregate amount (of which the interchange fee, is one part, and the acquiring bank’s amount, another part), the levy is satisfied. In such circumstances, the segregation of the whole MDR (which includes the interchange fee) by slicing it into two portions, i.e. the interchange fee and the acquiring bank’s charge, solely for the purpose of obliging all parties to reflect these in separate returns, only complicates issues. The other interpretation, would lead to a different aggregate, whereby service tax is levied on the entire MDR and once again, on the interchange fee, the issuing bank separately collecting service tax, results in an amount exceeding 14% towards tax. Both H

p. 562 Copy page pinpoint

A interpretations, in my opinion, cannot support separate levies, which would be contrary to Section 65.

36. I am also unable to agree with Joseph, J. about the true construction of the notification exempting transactions below 2000/- from payment of service tax. I base this, on a plain and textual reading of the terms of the Notification 25/201239, which, inter alia, reads as follows: “64. Services by an acquiring bank, to any person in relation to settlement of an amount upto two thousand rupees in a single transaction transacted through credit card, debit card, charge card or other payment card service. Explanation. — For the purposes of this entry, “acquiring bank” means 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.] inserted by Notification No.52/2016-ST, dated 8.12.2016.” D It reflects that legislative intent/understanding is also limited to only the acquiring bank paying service tax, on an aggregate amount. If it were otherwise, the object of granting exemption would be defeated because the acquiring bank would then be collecting (or, correspondingly, the issuing bank would be deducting) the proportion of tax leviable on the interchange fee, thus resulting in a partial levy of service tax on the quantum of transactions ( 2000/- and below) which are clearly exempt. In my opinion, therefore, Joseph, J’s opinion that by the exemption, the issuing bank cannot claim exemption on the ground that acquiring bank is exempted, therefore, is not accurate. It is also important to remember that what is taxed, is the value of the transaction and it is the transaction that is exempt, not the service provider. Therefore, the express use of only ‘acquiring bank’ is indicative that Parliament was well aware of how credit card transactions are conducted.

37. I am therefore, not in agreement with the reasoning of Joseph, G J. that “service provider” under Section 67(1)(i) imply that both the acquiring bank and issuing bank are service providers, and the gross amount on which the tax is collected, is not the aggregate of the value of the services provided by the different service holders. The judgement of

39 https://www.cbic.gov.in/resources//htdocs-servicetax/st-notifications/st-notifications- H 2012/Mega_Exemption_Notification_22022018.pdf

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 563 BANK N. A. [S. RAVINDRA BHAT, J.]

Joseph, J. with respect, is mainly concerned by the fact that Citibank A retains 2 before crediting the rest of the money towards settlement of the transaction; and therefore, in the absence of proof that acquiring bank has paid service tax on amount including the interchange fee, it is liable to pay for the specific service provided by it, as a distinct service provider. As explained in the earlier portion of this judgment, the activity or part played by the issuing bank is undoubtedly a service. However, it is part of the service; by itself, and without the role of the acquiring bank, it becomes a pure advance or loan transaction. However, the provision of service by the issuing bank and the acquiring bank together, triggers the levy. In other words, the component of service by the issuing bank is just that – a part of a single unified service, which for business convenience is structured in a manner, that the issuing bank retains 2, and tax is paid on the overall service, in the hands of the acquiring bank. There is no revenue leakage. The manner in which the credit card transaction, particularly the inter se transaction between the issuing bank and the acquiring bank is fashioned is such that instead of releasing the entire amount, in the first instance, and claiming the interchange fee later, the issuing bank retains the component of interchange fee. Conclusion

38. For the sake of clarity and completeness, I have briefly summarised my position in relation to each of the conclusions drawn by E Joseph, J. in his judgment (paragraph 109): (A) On Conclusion I: I am in agreement that the respondent- Citibank, as issuing bank was providing service, as found by the Commissioner. However, this service was a part of a single unified service – of settling transactions – which is provided by both the acquiring and issuing bank (which in some circumstances may well be the same F bank). (B) On Conclusions II, III, and IV: I am in agreement with J. Joseph that prior to 01.07.2012, the service of issuing bank fell within Section 65 (33a) (iii); interchange fee cannot be treated as interest, as argued by Citibank; and lastly the case that credit card transaction, being G a transaction in money and therefore excluded from the definition of “service” in Section 65B (44) is unacceptable. (C) On Conclusion VI: I agree that the plea to dismiss the appeals solely on the ground that no appeal was carried against the Order in ABN Amro (supra) has no merit. H

p. 564 Copy page pinpoint

A (D) On Conclusion V, VII-X: Service tax is undoubtedly a value added tax. However, having characterised the service to be a single unified service – wherein service tax, by way of business convenience, is collected from/remitted by the acquiring bank on the value (whole MDR which includes the interchange fee that is retained by the issuing bank) taxable for the single service rendered by both the acquiring and issuing bank – Citibank cannot be called upon to pay the service tax again as this would result in double taxation. In view of my previous discussion, I do not agree with the reasoning in ABN Amro (supra). For the same reasons, I am of the opinion that the question of remand to the tribunal does not arise. The only point of contention seems to be whether they were reflecting the payment of service tax separately in their ledgers, as issuing and acquiring bank. However, as a result of the reasons already elaborated, this is rendered to be a purely academic question. A question of returns should not detain this Court, because the business reality is that every bank is both an issuing bank and an acquiring bank, and it is nobody’s case that the banks are not filing their returns on service tax. As regards the revenue’s allegation of wilful suppression, the settled view of this court, is best explained from the following extract of a previous three judge ruling, in Cosmic Dye Chemical v. Collector Of E Central Excise40 where it was observed – in relation to Section 11A of the Central Excise Act, 1944, (which is in pari materia with Section 73 of the Finance Act, 1994) that: “Now so far as fraud and collusion are concerned, it is evident 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 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 constitute a permissible ground for the purpose of the proviso to Section 11-A. Misstatement or suppression of fact must be wilful.”

H 40 (1995) 6 SCC 117

COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI 565 BANK N. A. [S. RAVINDRA BHAT, J.]

This decision was followed in M/s Uniworth Textiles v. A Commissioner of Central Excise41 where it was stated that: “The conclusion that mere non-payment of duties is equivalent to collusion or willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of non-payment would amount to ordinary default? Construing mere non-payment as any of the three categories contemplated by the proviso would leave no situation for which, a limitation period of six months may apply. In our opinion, the main body of the Section, in fact, contemplates ordinary default in payment of duties and leaves cases of collusion or willful misstatement or suppression of facts, a smaller, specific and more serious niche, to the proviso. Therefore, something more must be shown to construe the acts of the appellant as fit for the applicability of the proviso.”42 Therefore, with regards to the revenue’s allegation of wilful suppression, I find no merit given that this was not the allegation or scope of the Show-Cause Notices issued. Moreover, the representations sent by the Indian Bank Association to the Joint Secretary, TRU, Central Board of Excise and Customs confirm that there was a lack of clarity with regards to the method of payment of this tax, for which there was an ongoing dialogue between the banking institutions and Central E Government, negating any claims of “wilful suppression”. One cannot also be oblivious of the fact that the position of law, was in a state of flux, at the relevant period. Hence, and in view of the reasons given above, the present case does not warrant remand to the Tribunal, and this dispute should, in my opinion, stand finally concluded at this stage. F

39. Therefore, for the reasons already elaborated above – I am of the opinion that these appeals by Revenue ought to be dismissed.

Ankit Gyan Matter referred to Appropriate Bench. G

41 (2013) 9 SCC 753 42 Other decisions – i.e. Padmini Products v. CCE [(1989) 4 SCC 275], Tamil Nadu Housing Board v Collector Central Excise [1995] Supp (1) SCC 50, etc. have given similar reasoning. H