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TMI Blog2019 (3) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 16-1-2019 - Shri B. Timothy, Addl. Commissioner of Central Tax, (Member) And Shri B.V. Borhade, Joint Commissioner of State Tax, (Member) PROCEEDINGS (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) 1. The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as the CGST Act and MGST Act ] by The Mobile Wallet Pvt. Ltd., the applicant, seeking an advance ruling in respect of the following questions: 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? 02. FACTS AND CONTENTION-AS PER THE APPLICANT 1) Statement of relevant facts having a bearing on the questions raised- 1) The Mobile Wallet Private Limited (hereunder referred as Applicant) registered with the Registrar of Companies Vide Registration No. U67190MH2015PTC267015, having a corporate office at 3rd Flo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) of Federal Bank. As part of BC arrangements, Appellant has launched Co-branded Pre-paid Cards in India with Federal Bank powered by MasterCard. Interchange Fees is the subject matter of the dispute is earned by Issuing Bank: The flow of business transaction can be explained in a detail as under 1) The card holder does a purchase at the merchant establishment (online or offline) and make payment by swiping his/her debit / credit / pre-paid card on Point of Sale (POS) machine placed by Acquiring bank in case of card present transaction or by entering his / her card details in Payment Gateway (PG) provided by Acquiring Bank in case of Card not present transaction. The card holder need to validate the transaction by ATM PIN (in case of Card present) or by OTP on registered mobile in case of Card not present). In case of Card present transaction, card is swiped on electronic equipment known as Point of Sale' terminal at the Merchant Establishment for charging the card holder for purchase of goods or services. Such terminals are provided by the 'Acquiring Bank' to the Merchant Establishments which enables validation and acceptance of payment by Debit/ Credit/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the card holder and makes the payment to the Acquiring Bank after deducting part of the Merchant Service Fee charged by Acquiring Bank in the form of Interchange Fee. 4) Further, Issuing bank pays pre-agreed fees to the Network and discharge the GST tax liability on the same under reverse charge mechanism. 5. The Merchant Discount Fee which is the gross amount received by acquiring bank from a Merchant Establishment towards the support service is subjected to GST @ 18% falling under the category of financial services. Let us elaborate with an Example: Transaction Amount: - ₹ 10,000 online MDR payable by Merchant to Acquirer - 1.80% plus GST Interchange Rate to issuing bank: - 1.60% on MASTER Pre-paid Card for online transaction Interchange Fee Sharing- 85%: 15% between Applicant TMW and Issuing Bank 1. Merchant Settlement by Acquirer Particulars Rupees Amount 10000 MDR Rate 1.80% MDR Amount 180.00 GST (CGST) @9% 16.20 GST (SGST) @9% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Issuing bank to Acquiring bank 12.20 12.20 BC to Issuing bank 10.37 10.37 Total 38.77 38.77 Different practice prevails by the Network in the industry Before making our submission we would also like to highlight the different practice followed by different network on their platforms. As discussed there are 3 main network prevailing in the field of this digital transactions. Master and Visa work differently than the Indian RUPAY platform. The data provided by the MASTER AND VISA is only about the interchange fee to the Acquiring and the Issuing bank and not anything about GST. Whereas RUPAY provide the interchange FEE along with GST. Taking our earlier example of ₹ 10000 transaction, we can present the case as per Rupay and Master/Visa Network practice prevailing in the system. RUPAY CASE Rs.32.40 GST (18% of 180) is charged to the Merchant Establishment by the Acquiring bank. Issuing bank will charge GST of ₹ 28.80 (18% of 160) to the Acquiring bank, so Acquiring bank can take a credit of 28.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a single consolidated price charged, the identity of each of the components of supply must be unmistakably distinct in the arrangement. In the erstwhile service tax Era, it is a composite service and should not be broken into separate service. The role of the issuing bank in the service provided by the acquiring bank to the merchant establishment is part of a single composite service falling under clause (iii) of Section 65 (33a) and it cannot be broken up into its components and classified as separate service for classification. This is a well-accepted principle of classification. The relevant clause of Section 65 (33a) is reproduced below: (iii) by any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card. Explanation. -- For the purposes of this sub-clause, acquiring bank means any banking company, financial institution including nonbanking financial company or any other person, who makes the payment to any person who accepts such card; In fact there is one composite supply under GST, provided by the acquiring bank to the merchant establishment for which gross val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and the relevant provisions of Section 95, Section 97 and Section 98 of the GST Act. As per section 95, the term 'advance ruling' means a decision provided by this authority to the applicant on matters or questions specified in subsection 2 of Section 97, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. For the sake of better understanding Section 97 is reproduced as below: Section 97: (1) an applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought. (2) The question on which the advance ruling is sought under this Act, shall be in respect of,-- (a) classification of any goods or services or both; (b) applicability of a notification issued under the provisions of this Act; (c) determination of time and value of supply of goods or services or both; (d) admissibility of input tax credit of tax paid or deemed to have been paid; (e) determination of the liability to pay tax on any goods or services o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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