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TMI Blog2013 (9) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 15/12/2009 4,47,67,101/- April 02 to May 2006 As the issue involved is common in all these appeals they are taken up together for consideration and disposal. 2. The banks are engaged in providing banking and other financial services to individuals and offer wholesale banking capabilities to corporate and institutional clients. They also provide credit card services to their customers and charge service charges on which service tax liability is discharged. The credit card holder uses the card for purchasing goods and services from various merchant establishments. The merchant establishments accept the credit cards towards payment of the goods/services supplied. Thereafter, the merchant establishments get the reimbursements from the Acquiring Banks, who can be the same as issuing bank or any other bank. The acquiring bank charges the merchant establishments discounts/service fees. The acquiring banks report such transactions to the respective credit card issuers (master card, visa card, etc.) which makes payment to the acquiring banks and charge for the services. The credit card issuer, in turn, claims the amounts paid by it to the acquiring bank from the concerned issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he use of the credit card is as follows. There are five persons involved in a credit card transaction, namely: Sr. No. Player Role 1 Card holder The person possessing and using the card 2 Issuing bank The Bank issuing the card to its customer viz. the card holder 3 Card association (VISA/Mastercard, etc) Provides the payment infrastructure and issuing/acquiring banks are its members 4 Merchant Establishment The vendor of goods or service who accepts the card in lieu of cash payment from the card holder 5 Acquiring bank Provides payment processing services to Merchant Establishments by entering into a separate agreement with the merchant and placing a swipe machine at the merchant outlet ME Discount which is the subject matter of the dispute is earned by Acquiring bank as under: a. The card holder does a purchase at the merchant outlet and signs the transaction-slip generated by the merchant using the swipe-machine placed by Acquiring bank, say purchase of Rs.100. b. The merchant deposits the transaction-slip with the Acquiring bank via settlement procedure. &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t include ME Discount fees. Merchant is not the customer of the issuing bank and does not avail the services of credit card and is not a credit card holder for the issuing bank. There exists a separate and independent agreement between the Acquiring bank and the merchant which gives rise to ME Discount income in the hands of Acquiring bank. Thus what was taxable, prior to 1-5-2006 was only the transaction of the Issuing bank with the card holder. The services to the merchant establishment cannot be subjected to service tax in the absence of any statutory provisions existing at the relevant time. (6) The Hon'ble Bombay High court in C.K.P. Mandal's case 2006 (4) STR 183 (Bom) interpreted the phrase "in relation to" and held in the context of Mandap Keeper service that only services to customer can be subjected to service tax. Similarly the Hon'ble High Court in Indian National Ship Owners' Association case 2009 (14) STR 289 (Bom) case held that the expression "in relation to" has to be interpreted contextually. (7) With effect from 1 May 2006, the statutory definitions were amended to include services of 'settlement of amount transacted through the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the extent the notices are issued beyond normal period of limitation. Without prejudice to the submissions on merits and as an alternatively plea, the Appellants should be granted cum-tax benefit if the demands are found to be sustainable. (11) With respect to the reliance placed by the Revenue on the decision of this Hon'ble Tribunal in ABN Amro Bank - 2011 (23) STR 529 (Tri Del), the same is not applicable in the facts of the present Appeal. ABN Amro Bank acted as an Issuing bank and as an Acquiring bank. In the present case, the Appellant acted as Acquiring Banks and not as issuing banks. Therefore, the facts of ABN Amro case are totally different than the facts in the present appeals. (12) The Hon'ble Supreme Court in Ispat Industries case 2006 (202) ELT 561 (SC) held that - "It must be remembered in this context that a case is only an authority for what it actually decides." As observed by the Supreme Court in State of Orissa v. Sudhansu Sekhar Misra - AIR 1968 SC 647 - "A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.'' *** *** *** "Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it." The Hon'ble Supreme Court in Toyota Kirloskar Motor Pvt Ltd - 2007 (213) ELT 4 (SC) has held that the ratio of a decision, must be culled out from the facts involved in a given case. A decision, as is well-known, is an authority for what it decides and not what can logically be deduced therefrom. (14) In ABN Amro's case, the Hon'ble Tribunal was concerned with deciding taxability of Interchange fee and not ME Discount. The Tribunal has not g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asing services including equipment leasing and hire-purchase by a body corporate (ii) credit card services; (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking, (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management; (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and (vii) provision and transfer of information and data processing;" (c) The word 'customer' appearing in section 65(72) has not been defined in the Act and therefore, ordinary meaning attached to it in common parlance shall prevail. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit card holder when the charges are being collected by the bank from their other customers also, namely, merchant establishments for the services provided in relation to credit cards. Collecting and making payment to a merchant establishment for the goods/services purchased by a credit card holder using his credit card is undoubtedly a service provided in relation to the credit card. The acquiring bank retains part of the amount which is recovered from the Credit Card holder when he purchases good/services from a merchant establishment using his Credit Card instead of paying in cash. Therefore it cannot be said that no services have been provided by the acquiring bank to the merchant establishment and the Credit Card holder. (d) As regards Board's communication vide B.11/1/2001-TRU, dated 9-7-2001 it can be seen from para 2.2.2 thereof that the examples of the charges indicated therein is only illustrative and not exhaustive. "2.2.2 For rendering the service, the service provider collects joining fee, additional card fee, replacement card fee, cash advance fee, charge slip/statement retrieval fee, surcharge/service charges on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card ; (f) Board vide D.O.F. No.334/4/2006-TRU, dated 28-2-2006 explained the purpose of the above changes in the law, as under:- "3.19 CREDIT CARD RELATED SERVICES: Credit card services are presently taxable under banking and other financial services. The proposal is to tax comprehensively all services provided in respect of, or in relation to, credit card, debit card, charge card or other payment card in any manner. The major services provided in relation to such services are specifically mentioned under the definition "credit card, debit card, charge card or other payment card service". From the above letter of the board, it can be seen that the scope of credit card services was extended to cover 'debit card, charge card or other payment card in any manner." Clearly, the credit card services which were taxable prior to the above amendment continued to be taxed. The clause (i), (ii) and (iii) of section 65 (33a) above have only grouped the different customers of the ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter 65(105)(zzzw) of the Act. It was therefore, consciously explained by Govt. that credit card service earlier belonged to banking and other financial services prior to enactment of Finance Act, 2006 was regrouped in section 65(33a) by Finance Act, 2006. 16. The proposal by Finance Act, 2006 was to bring comprehensively all types of card under one definition clause so that all services provided in relation to such credit cards shall be conveniently dealt by the tax administration following cannon of convenience which is one of the considerations of classification rule. Therefore at no point of time, credit card service cannot be presumed to be excluded from levy before enactment of Finance Act, 2006. It may be stated that what was expressively clear soon after enactment of Finance Act, 2001 bringing section 65(72)(zm) to statute book read with section 65(10) of the Act was to tax "credit card service". Therefore, express statutory grant took within its fold all incidental and ancillary service using the term "in relation to" credit card through the charging provision of section 65(72)(zm) and subsequently section 65(105)(zzw) of the Act to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he risk that the card is used fraudulently - Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder. - Acquiring bank: The financial institution accepting payment for the products or services on behalf of the merchant - Independent sales organization: Resellers (to merchants) of the services of the acquiring bank. - Merchant account: This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with. - Credit Card association: An association of card-issuing banks such as Discover, Visa, Master CArd, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks. - Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovide hassle-free credit to customers based on the assessment of cash-flow without insistence on security, purpose or end-use of the credit. Thus the essence of the service is provision of hassle-free credit by the Issuing Bank (service provider) to the Card holder (service recipient). In the process of operationalising or rendering of the service, other players come into the picture such as Merchant Establishments, Acquiring Bank, Credit Card Association and so on. For the credit card services rendered, the service provider charges various types of fees such as, annual/renewal fee, additional card fee, charges on revolving credit, charges on over-limit account, cash advance charges, late payment charges, cash processing fees, reward redemption fee, balance transfer processing charges, petrol transaction surcharge, railway ticket purchase fee, re-issue of lost, stolen or damaged card retrieval fee and foreign currency transaction fees. The credit card services include grant of credit for purchase of goods and services, withdrawal of cash up to certain limits, payment of utility bills such as water, electricity, telephones, etc., payment for fuel for the conveyance, booking of tick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice where the customer is provided with credit facility for purchase of goods and services in shops, restaurants, hotels, railway bookings, petrol pumps, utility bill payments, etc. Cash advances are also permitted upto specified limits in most of the cases. This service is provided by nationalised banks, multi-national banks and private banks. 2.2.2 For rendering the service, the service provider collects joining fee, additional card fee, annual fee, replacement card fee, cash advance fee, charge slip/statement retrieval fee, surcharge/service charges on railway fare, fuel charges, and utility bill payments, charges on over limit accounts and late payment fee, interest on delayed payment, interest on revolving credit, etc. The fees may vary based on the type of card and from bank to bank. All these charges, including interest charges are made for the services rendered. Hence they all form part of the value of the taxable service in this case. 2.2.3 The service tax is leviable only in respect of transactions which are done using a credit card on or after 16th of July 2001. Any amount paid by a customer to credit card service provider in respect of trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utomated teller machines of such person; and (vii) by the owner of trade marks or brand name to the issuing bank under an agreement, for use of the trade mark or brand name and other services in relation to such card, whether or not such owner is a club or association and the issuing bank is a member of such club or association. Explanation.- For the purposes of this sub-clause, an issuing bank and the owner of trade marks or brand name shall be treated as separate persons Thus, the definition and concept of service underwent a significant change to include services only in respect of credit cards but also other types of cards such as debit card, charge card and other payment cards and the scope of the term "service provider" was also widened to include not only the bank issuing the card but also acquiring bank, various transaction processors, ATM service providers, brand name/trade mark holders and so on as defined in sub-clauses (ii) to (vii) of clause (33a). Sub-clause (i) covered the services rendered by the issuing bank to the card-holder which was previously covered under sub-clause (ii) of clause (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In every budget, the scope of levy was extended either bringing new services under the tax net or by expanding the scope of the existing taxable services. That does not mean that the expanded coverage was applicable retrospectively. For example, in respect of telephone services, which was one of the three services on which service tax was imposed in 1994 budget, the coverage was limited to services rendered to a telephone subscriber. Services rendered by one telecom operator to another was not subject to tax. The scope and coverage of telephone services was comprehensively revised and expanded in the 2007 budget when services rendered by one telecom operator to another, commonly known as "interconnectivity usage service" was also brought under the tax net. In that context, a question arose whether prior to 2007, whether service tax was leviable on such interconnection services rendered by one telecom operator to another. It was clarified by the CBEC vide Circular No. 91/2/2007 dated 12-3-2007 as follows:- "4. ..., vide Finance Bill, 2007, a new definition of 'telecommunication service' has been incorporated vide clause (104) of section 65 of the Finance Act, 1994 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered by the issuing bank to the credit card holder. Subsequently in 2006, the coverage of credit card services was expanded to bring into tax net the transactions/services between Merchant Card Association and Acquiring Bank, Acquiring Bank and Credit Card Association and Credit Card Association and Issuing Bank. In addition other types of card services, such as, debit card, charge card and other payment card were also brought under the tax net. This widening of the coverage is effective only from 2006 onwards and not retrospectively from 2001 onwards. Similar expansion in the coverage of services has taken place in respect of a larger number of services such as 'man power recruitment or supply service', 'business auxiliary service', 'management, maintenance or repair service', 'erection, commissioning and installation service' and son. In all these situations, the consistent stand of the Revenue as well as the Tribunal and the Courts has been to give effect to expanded coverage only prospectively. The same logic applies in the present case also. 5.9 In the ABN Amro case, a co-ordinate bench of this Tribunal has taken a view that in view of the expression "in relation to" prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings bring to light what is perceived by them as an erroneous decision in the earlier case. In such circumstances, it is reasonable and indeed efficacious to refer the case to a Larger Bench." In view of the reference to be made to the Larger Bench, we do not go into the other questions raised by the Banks with regard to invocation of extended period of time, imposition of penalties and treating the total consideration received as cum tax now and the same shall be considered after the reference made to the Larger Bench is replied. 5.11 Accordingly, we refer the following points of law for consideration by the Larger Bench,- (i) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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