2015 (8) TMI 686 - AT - Service Tax

Credit Card Services - On and from 01-05-2006 credit card services was deleted from BOFS and incorporated into a distinct service - scope of the Banking and Other Financial Services (BOFS) as introduced w.e.f 16-07-2001 - Held that - introduction of a comprehensive definition of credit card, debit card, charge card or other payment service in Section 65(33a) read with Section 65(105) (zzzw), by the Finance Act, 2006 is a substantive legislative exertion which enacts levy on the several transactions enumerated in sub-clauses (i) to (vii) specified in the definition set out in Section 65(33a); and all these transactions are neither impliedly covered nor inherently subsumed within the purview of credit card services defined in Section 65(10) or (12) as part of the BOFS; Whether the levy is retrospective - Held that - Section 65(33a) is neither intended nor expressed to have a retroactive reach i.e. w.e.f. 16.07.2001. Services enumerated in these sub-clauses are not implicit in the scope of credit card services; Scope of the term Customer - merchants/merchant establishments (ME) - Held that - Held that - a Merchant/ Merchant Establishment is a customer in the context of credit card services enumerated in Section 65(72)(zm), subsequently Section 65(105)(zm) and a fortiori an acquiring bank is a customer of an issuing bank. Scope of the term in relation to - Merchant Establishment Discount - Held that - ME discount, by whatever name called, representing amounts retained by an acquiring bank from out of amounts recovered by such bank for settlement of payments to the ME does not amount to consideration received in relation to credit card services.

Summary

Issues Involved:
1. Classification of services under "Banking and Other Financial Services" (BOFS) and "Card Services."
2. Retrospective applicability of sub-clause (iii) in Section 65(33a).
3. Definition of "customer" in the context of credit card services.
4. Taxability of Merchant Establishment Discount (ME Discount).

Issue-wise Detailed Analysis:

1. Classification of Services under "Banking and Other Financial Services" (BOFS) and "Card Services":
The core issue was whether services provided by financial institutions towards settlement of payments in relation to credit card transactions constituted "credit card services" under BOFS, a taxable service defined in the Finance Act, 1994, for the period from 16-07-2001 to 30-04-2006. The judgment clarified that the introduction of a comprehensive definition of "credit card, debit card, charge card or other payment card service" in Section 65(33a) by the Finance Act, 2006, was a substantive legislative exertion. It was held that all transactions enumerated in sub-clauses (i) to (vii) of Section 65(33a) were not inherently covered under the scope of credit card services in BOFS.

2. Retrospective Applicability of Sub-Clause (iii) in Section 65(33a):
The judgment concluded that sub-clause (iii) in Section 65(33a), which covers services related to the settlement of amounts transacted through cards, was not intended to have retrospective effect from 16-07-2001. The services enumerated in these sub-clauses were not implicit in the scope of credit card services under BOFS prior to 01-05-2006.

3. Definition of "Customer" in the Context of Credit Card Services:
The judgment held that a Merchant/ Merchant Establishment could be considered "a customer" in the context of credit card services as defined in Section 65(72)(zm) and subsequently in Section 65(105)(zm). It was also held that an acquiring bank is "a customer" of an issuing bank. The relationship between the merchant establishment and the acquiring bank, and between the acquiring bank and the issuing bank, was deemed sufficient to establish a customer's relationship under the statutory provisions.

4. Taxability of Merchant Establishment Discount (ME Discount):
The judgment concluded that the Merchant Establishment Discount (ME Discount), representing amounts retained by an acquiring bank from the amounts recovered for settlement of payments to the merchant establishment, did not amount to consideration received "in relation to" credit card services. The scope of credit card services under BOFS was limited to services provided by an issuing bank to its cardholder, primarily involving the extension of credit facilities.

Separate Judgments:
The judgment was delivered by a bench comprising Mr. Justice G. Raghuram, Mr. Ashok Jindal, and Mr. R. K. Singh, with no separate judgments delivered by individual judges.

Conclusion:
The judgment clarified the scope of credit card services under BOFS and distinguished it from the comprehensive definition introduced in 2006. It emphasized that services related to the settlement of payments between acquiring banks and merchant establishments, as well as interchange fees, were not taxable under BOFS for the period before 01-05-2006. The judgment overruled the earlier decision in ABN Amro Bank and provided a detailed analysis of the statutory provisions, legislative intent, and interpretative principles.