2014 (12) TMI 504 - AT - Service Tax

Whether the commission/discount earned by the acquiring bank from the Merchant Establishment is liable to service tax under the category of banking and financial services for the period prior to 01.05.2006 - Held that - as the correctness of the earlier decision in ABN Amro 2011 (7) TMI 312 - CESTAT, NEW DELHI was doubted in the case of Commissioner of Service Tax vs. HDFC Bank Ltd. (2013 (9) TMI 630 - CESTAT MUMBAI) and the matter was referred to Larger Bench on the following points of law for consideration - Whether the introduction of the new, comprehensive definition of credit card, debit card, charge card or other payment card service vide section 65 (33a) read with section 65 (105)(zzzw) by the Finance Act, 2006, is substantive and seeks to levy all the transactions covered by use of Credit/Debit/Charge Card or is in continuation of the levy under Section 65 (10) or (12), as the case may be, as held in the case of ABN Amro decision in so far as credit card services are concerned? Whether the sub-clause (iii) in the definition of taxable service viz. credit card, debit card, charge card or other payment card service in section 65 (33a) can be said to be applicable retrospectively, i.e. from 16 July 2001 when section 65 (72) (zm) became effective? Can merchants / merchant establishments be considered as customer as envisaged in Section 65 (72)(zm) of the Finance Act, 1994 as it stood prior to 1-5-2006? Whether Merchant Establishment Discount can be said to be received in relation to credit card services when in fact in a particular transaction, the Acquiring bank receiving ME Discount may not have issued that particular credit card at all? (72)(zm) of the Finance Act, 1994 as it stood prior to 1-5-2006? Matter to be placed before the Hon ble President, CESTAT for constitution of the Larger Bench.

Summary

Issues involved:
Whether the commission/discount earned by the acquiring bank from the Merchant Establishment is liable to service tax under the category of banking and financial services for the period prior to 01.05.2006.

Analysis:
The appeal in question arose from an Order-in-Original passed by the Commissioner of Central Excise & Service Tax, Thane-I. The central issue pertains to the liability of service tax on the commission/discount earned by the acquiring bank from the Merchant Establishment before 01.05.2006. The Tribunal noted that the coverage of credit card services was expanded in 2006 to include transactions/services between various entities involved in credit card operations. This expansion was effective only from 2006 onwards and not retrospectively from 2001. The Tribunal highlighted that the consistent approach in similar situations has been to apply expanded coverage prospectively, not retrospectively.

The Tribunal also considered a conflicting decision by a co-ordinate Bench regarding the interpretation of the expression "in relation to" preceding banking and financial services in the taxable service definition. The Tribunal disagreed with the expansive interpretation, emphasizing that the expression only expands the scope of credit card services and does not alter the identity of the service provider or recipient. The Tribunal concluded that all transactions related to credit card services became taxable only from 01.05.2006 when the new entry was introduced, encompassing credit card, debit card, charge card, or any other payment card services.

Due to the conflicting views, the Tribunal referred the present appeal to a Larger Bench for consideration on specific points of law. These points include the substantive nature of the new definition of credit card services introduced in 2006, the retrospective applicability of certain clauses, the classification of merchants/merchant establishments as customers, and the characterization of Merchant Establishment Discount in relation to credit card services. The matter was directed to be heard along with a related case for a comprehensive review by the Larger Bench.

In conclusion, the Tribunal referred the appeal to a Larger Bench for further consideration and directed the Registry to place the matter before the Honorable President for the constitution of the Larger Bench.