2015 (11) TMI 909 - AT - Service Tax

Demand of service tax - Credit card services - Mark up charges - Held that - The term Credit Card Services was not defined during the impugned period. A new tax entry was introduced in 2006 under Section 65(12) as Credit Card Services with much wider scope as defined under Section 65 (33a). The period relevant for the present appeal is prior to this new entry - when card is issued with international credit facility, service charges collected at that time or on periodical basis are subjected to service tax under credit card service. When such card is used to pay in foreign exchange outside India there will necessarily be a charge for conversion of currency. The card holder is settling his dues with appellant only in rupees. The card is used for payment in foreign exchange. As such the mark up charge is directly attributable to the conversion of currency. This much is clear from the terms of usage and the card holder is also aware of the nature of mark up. The case of Revenue is that since card is an instrument which only enables such conversion of currency, hence any mark up collected on this account is leviable to tax as credit card service. - mark up charges accruing to the appellant when card holder uses card to pay in foreign exchange abroad is not liable to service tax under Credit Card Services during the impugned period. This conclusion is based both on merit of scope of Credit Card Services during relevant period and lack of territorial jurisdiction of charge. - appellant is not liable to service tax on interchange charges in view of the findings of the larger Bench of the Tribunal in Standard Chartered Bank (2015 (8) TMI 686 - CESTAT DELHI (LB)) - Decided in favour of asessee.

Summary

Issues:
1. Service tax liability on revenue generated from 'interchange' income.
2. Service tax liability on revenue generated from mark-up amount over official conversion rate when credit card is used abroad.

Issue 1: Service tax liability on revenue generated from 'interchange' income:
The appellant, engaged in credit card business, was registered for service tax under 'Banking and other Financial Services' (BOFS). The Commissioner confirmed the demand for service tax on 'interchange' income. However, citing a precedent case, the Tribunal held that the service tax liability on this income was not sustainable. The appellant successfully argued that the 'interchange' income was not taxable under credit card services.

Issue 2: Service tax liability on revenue generated from mark-up amount over official conversion rate when credit card is used abroad:
The dispute centered around whether the mark-up income accrued to the appellant from currency conversion when a cardholder used the card abroad was taxable under credit card services. The appellant contended that the mark-up revenue was solely attributable to the service of currency conversion, not covered by credit card services. The Tribunal analyzed the statutory provisions and found that the mark-up charges related to currency conversion did not fall under 'Credit Card Services' during the relevant period.

The Tribunal also considered the argument of the service being outside the taxable territory of India. It was established that the service, namely the facility of using the card for payment in foreign exchange, was rendered, received, and consumed outside India. Citing a previous decision and the principle of territorial jurisdiction, the Tribunal concluded that the mark-up charges were not liable to service tax under 'Credit Card Services' during the impugned period.

In conclusion, the Tribunal ruled in favor of the appellant on both issues. The appellant was not liable to service tax on 'interchange charges' based on the precedent case and the mark-up charges were also deemed not liable to service tax. Therefore, the appeal was allowed.