2014 (11) TMI 334 - AT - Service Tax

Waiver of pre deposit - Banking and Other Financial Services - appellant-Bank acts as both card Issuing Bank and also Acquiring Bank - Levy of tax on Interchange commission earned by Assessee - interest and penalty under Section 78 - Held that - When a Credit card is swiped in a machine in the merchant establishment for verification, the issuing bank would verify and whether the credit card holder is eligible for using card before payment and thereafter it would, in turn, communicate the merchant establishment to complete transaction. In this case, both the banks are in reality providing a service to the card holder and the merchant establishment. The Issuing Bank is only providing service to the card holders to confirm their eligibility for credit which cannot be said to be a service to the merchant establishment or to the Acquiring Bank. service received or provided by an Issuing Bank or an Acquiring Bank in the kind of transaction is not covered in any of the clauses of definition of service. In such a situation, the taxability itself is in doubt. - sharing of the commission between the Acquiring Bank and the Issuing Bank cannot be considered as service transaction but as sharing of income between two service providers. - Stay granted.

Issues:
1. Liability of service tax on Interchange commission earned by the appellant.
2. Double taxation concern due to service tax demand.
3. Comparison with reverse charge mechanism for service tax payment.
4. Definition of service under credit card business for taxability assessment.

Analysis:

Issue 1 - Liability of service tax on Interchange commission:
The case involved a dispute regarding the service tax liability on the Interchange commission earned by the appellant bank. The appellant contended that the service tax on the full commission had already been discharged by the other banks, and the amount received by the appellant was only a share of income that had already suffered service tax. The Tribunal considered the argument and observed that the sharing of the commission between the Acquiring Bank and the Issuing Bank could be viewed as the sharing of income between two service providers rather than a service transaction. This perspective raised doubts on the taxability of the transaction, indicating that the liability of the appellant for service tax on the Interchange commission was not clear.

Issue 2 - Double taxation concern:
The appellant raised concerns about the possibility of double taxation if they were required to pay service tax on the Interchange commission. The Tribunal acknowledged this concern and noted that demanding service tax on the same service at the hands of two banks could result in double taxation. This consideration highlighted the need to avoid imposing double taxation on the same transaction, emphasizing the importance of fair and just tax treatment.

Issue 3 - Comparison with reverse charge mechanism:
The Tribunal examined the comparison made by the Commissioner between the appellant's case and the payment of service tax under the reverse charge mechanism. The Commissioner had cited instances where banks discharged service tax liability under the reverse charge mechanism. However, the Tribunal found the comparison to be inappropriate and emphasized the need for a detailed analysis of the type of service provided, nature of transactions, and verification processes to determine the taxability accurately.

Issue 4 - Definition of service under credit card business:
The Tribunal delved into the definition of service under the credit card business to assess the taxability of the transactions in question. After analyzing the definition provided, the Tribunal concluded that the service received or provided by an Issuing Bank or an Acquiring Bank in the specific transaction scenario was not explicitly covered under the clauses defining services. This ambiguity raised doubts about the taxability of the transaction, further complicating the assessment of service tax liability.

In light of the above considerations and observations, the Tribunal waived the requirement of pre-deposit of the adjudged dues and granted a stay against recovery during the pendency of the appeal. The detailed analysis of the issues highlighted the complexity and ambiguity surrounding the taxability of the Interchange commission in the context of the credit card business, emphasizing the need for a thorough examination of the nature of services provided and received in such transactions.

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