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2019 (3) TMI 593 - AAR - GSTMaintainability of Advance Ruling application - Levy of GST - Merchant Discount Rate received by the issuing Bank as 'Interchange Fee' - Held that - Merchant Discount Rate is the rate charged by Acquiring bank from Merchant on every card transaction. This MDR is as per agreement between Acquiring Bank and Merchant Establishment. From a perusal of transaction it is clear that applicant is neither a supplier nor a recipient and the questions raised is not in relation to the supply of goods or services or both, being undertaken or proposed to be undertaken by the applicant and as such by virtue of section 95 the applicant cannot make an application before this authority. Why different practice prevails by the Network in the industry? - Held that - The question is not on matters or questions specified in Section 97(2) of the Act and as such is inadmissible under section 97 (2) of the Act. The present application seeking ruling on questions stated hereinabove is not maintainable and liable for rejection.
Issues Involved:
1. Whether the portion of the Merchant Discount Rate received by the issuing Bank as 'Interchange Fee' is liable to tax under the Goods and Service Tax? 2. Why different practice prevails by the Network in the industry? Issue-wise Detailed Analysis: Issue 1: Taxability of Interchange Fee under GST The applicant, The Mobile Wallet Pvt. Ltd., sought an advance ruling on whether the portion of the Merchant Discount Rate (MDR) received by the issuing bank as 'Interchange Fee' is liable to tax under the Goods and Services Tax (GST). The applicant explained the roles of various parties involved in a card transaction, including the cardholder, issuing bank, network, merchant establishment, acquiring bank, and business correspondent. The applicant argued that the interchange fee is part of a composite supply involving multiple parties and should not be taxed separately to avoid double taxation and disruption of the seamless flow of credit. The applicant provided a detailed explanation of the transaction flow and the GST implications at each stage, highlighting that the acquiring bank charges GST on the full MDR, and the issuing bank also pays GST on the interchange fee under the reverse charge mechanism. This results in double taxation as the issuing bank's GST payment does not allow the acquiring bank to claim input tax credit. The applicant contended that the interchange fee should be considered part of the composite supply provided by the acquiring bank to the merchant establishment, and thus should not be taxed separately. Issue 2: Different Practices by Networks The applicant highlighted that different networks (MasterCard, Visa, and Rupay) follow different practices regarding the interchange fee and GST. While MasterCard and Visa do not provide GST details in their settlement files, Rupay includes GST information, allowing the acquiring bank to claim input tax credit. This discrepancy results in different GST treatment and financial outcomes for transactions processed through different networks. Observations and Ruling: The Authority for Advance Ruling (AAR) observed that the questions raised by the applicant do not pertain to the matters specified in Section 97(2) of the CGST Act. Specifically, the applicant is neither a supplier nor a recipient in the context of the transaction in question, and the questions do not relate to the supply of goods or services undertaken or proposed to be undertaken by the applicant. The AAR concluded that the application is not maintainable under the provisions of the GST Act. Consequently, the application for advance ruling was rejected. Order: The application for advance ruling in Form GST ARA-01, registered as ARA NO. 87 dated 16/10/2018, is rejected as being not maintainable.
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