COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A

and another 1993 Supp (4) SCC 136; State of Karnataka and others v. Karnataka Pawn Brokers Association and others (2018) 6 SCC 363 : [2018] 10 SCR 409; Union of India and others v. Kaumudini Narayan Dalal and another (2001) 10 SCC 231 : 2001 (4) SCALE 227; Commissioner of Central Excise v. Tata Engineering and Locomotives Co. Ltd. (2003) 11 SCC 193: 2003 (8 ) JT 557; Birla Corpn. Ltd. v. Commissioner of Central Excise (2005) 6 SCC 95 : [2005] 1 Suppl. SCR 821; Jayaswals NECO Ltd. v. Commissioner of Central Excise, Nagpur (2007) 13 SCC 807; Sri Krishna Das v. Town Area Committee (1990) 3 SCC 645 : [1990] 2 SCR 13; Union of India (UOI) and others v. Tata Iron and Steel Company Limited, Jamshedpur (1976) 2 SCC 123 : [1976] 2 SCR 1044; Commissioner of Central Excise, Aurangabad v. Bajaj Auto Ltd., Waluj, Aurangabad Through Its Vice- President (Materials) and others (2010) 13 SCC 117 : [2010] 14 SCR 184 - referred to. Case Law Reference [2011] 2 SCR 874 [2010] 13 SCR 381 [2007] 9 SCR 650 [2007] 5 SCR 1141 [2018] 10 SCR 409 referred to referred to referred to referred to referred to [2005] 1 Suppl. SCR 821 referred to [1990] 2 SCR 13 [1976] 2 SCR 1044 [2010] 14 SCR 184 referred to referred to referred to Para 34 Para 39 Para 41 Para 42 Para 68 Para 79 Para 90 Para 91 Para 107 A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. 439 Per S. RAVINDRA BHAT, J. (Dissenting) HELD: 1. The pre-existing definition of credit card services [Section 65(12)(ii)] merely mentioned “credit card services” as part of banking and financial services – without elaborating what kind of services were comprehended in the definition. The 2006 amendment segregated this, by omitting sub-clause (ii) of Section 65(12) and enacting a new Section 65(33a). A plain reading of Section 65 (33a) reveals that seven distinct heads of credit card services are now comprehended within the broad description of “credit card services”. Each category – falling in sub-clause (i) to (vii) deals with a specific, enumerated service. The controlling expression “credit card, debit card, charge card or other payment card services includes any services provided” broadens the coverage of this species of service, in contrast with the pre- existing law. This inclusion by specific enumeration of “debit card, charge card or other payment card service” is an expanded class of card service. However, the further use of the term “includes” even while broadening (by enumeration of specific sub- categories) “credit card services” – also has the effect of limiting the coverage under Section 65(33)(a) to only the seven enumerated categories. This is apparent from the fact that after sub-clause (vii), there is no residuary provision authorising similar treatment to non-enumerated activities i.e., those not falling within sub-clauses (i) to (vii). In other words, the use of the expression “includes” while broadening – by specific enumeration of seven categories of card services – also limits the inclusive nature to those categories, and no more. The second incontrovertible feature is that each enumerated category falling within a sub-clause refers only to one kind of service. Thus, by sub-clause (i), the service referred to is the issuing of a card to a card holder; and by sub-clause (ii), the service of receipt, processing of applications, transfer of embossing data to the issuing bank’s personal agency, ATM, PIN number generation, renewal or replacement of cards, change of address etc., - essentially forming separate and ancillary services to the issuing card. This service largely involves one business entity providing service to another. By sub-clause (iii) - which this case is A B C D E F G H 440 SUPREME COURT REPORTS [2021] 13 S.C.R. concerned with - the service involved is by any person, [i.e., the issuing bank as defined in sub-clause (i)] and an acquiring bank, to any other person in relation to settlement of any amount transacted through “such card”. The emphasis here: apart from other related issues, is with the service of settlement of any “amount transacted” through the card. It is significant to notice that the reference to the service provider “by any person” is broad and comprehends all categories of persons and entities mentioned in sub-clause (i) (bank, financial institution, etc.) having regard to the definition of “person” [in Section 65B (37)]. Such being the case, the reference to issuing bank would fall within the broad description of “any person”. In any case, having defined “issuing bank” widely, per sub-clause (i), Parliament need not have referred to “any person, including issuing bank”; the meaning would have been the same if sub-clause (iii) had referred only to an “issuing bank” in place of “any person”. However, having regard to the essential nature of a credit card transaction, the inclusion is not directed as much to an issuing bank as to the specific reference to “an acquiring bank”. That term is not defined elsewhere except in this sub- clause, and by the explanation wherein the acquiring bank is defined as a bank, company, financial institution, etc. who makes the payment to any person, who accepts such cards. Crucially, then, only in Section 65(33a)(iii) does service by any person include service by the issuing bank and the acquiring bank. The use of the conjunctive “and” [in Section 65 (33a) (iii)] is to be contrasted with the other sub- clauses- Parliament used the disjunctive “or” in all other sub- clauses. The clear intention for this difference was that service providers could be business entities providing more than one service under one sub-clause [such as sub-clauses (ii), (iv), (vi) and (vii)]. The use of the conjunctive “and” in clause (iii) therefore, is telling and consequently, should receive literal interpretation. Therefore, there is disagreement with the judgment of K.M. Joseph, J on this aspect. [Paras 19-22] [543-G-H; 544-A-H; 545-A-E]

#2. There can be no debate that indisputably, Parliament, has to be attributed with full knowledge of the nature of credit card business models, where the primary objective of the entities A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. 441 that provide service, is to ensure payment for the underlying transaction between the card holder and the provider of goods or services. Parliament would also know that there are three business entities whose joint or concurrent functioning is essential for settlement of each credit card transaction. The three business entities are the issuing bank, the acquiring bank and the network [such as Visa, Mastercard, or RuPay, etc., which has been kept out of the definition under Section 65(33a)]. These are crucial factors and consequently I am of the opinion that the conjunctive “and” should be read literally and be given the meaning conjunctively rather than disjunctively. The result, therefore, is that when a person (i.e., the issuing bank), and an acquiring bank, provide service to another person, in relation to settlement of any credit card transaction, that service, by such person, and the acquiring bank, amounts to a “credit card service”- per Section 65 (33a). The unified nature of the service, to another (be it the card holder or the merchant, who are participants in the primary transaction and therefore beneficiaries) is the subject matter of sub-clause (iii) of Section 65(33a). I am fortified in this conclusion also in the use of the term “or” in sub-clauses (iv), (vi) and (vii) which define services capable of being provided to another business entity or service provider, and not a customer. [Para 23][545-F-H; 546-A-B]

#3. Justice Joseph in his judgment, relies on the contractual arrangements in question, to conclude that “legally they are separate services as the nature of service rendered by the issuing bank is different from the service rendered by acquiring bank”. In my opinion, the existence or otherwise of a contractual relationship is per se not determinative when a settlement of payment in relation to a credit card is involved. I say so because there is no contractual relationship between the acquiring bank and a card holder who might choose to use the device which is given to a merchant establishment by acquiring bank. Likewise, the merchant establishment need not have any pre-existing contractual relationship with the issuing bank. Neither the merchant establishment nor the card holder has any pre- existing relationship with the network provider whose role has been kept out of the definition clause. The network service provider (VISA, A B C D E F G H 442 SUPREME COURT REPORTS [2021] 13 S.C.R. Master Card, RuPay, etc.) in fact provides the platform for the completion of the transaction. The nature of the network’s database, the software provided by it and the entire platform forms the entire basis of the credit card system, enabling smooth cashless settlement of the primary transaction – purchase of service or goods by the card holder from the merchant. The entire focus of the Section 65 (33a) – as well as Section 65 (105) (zzzw) which refers to taxable service in respect of credit card service – is settlement of any transaction. It cannot be construed as settlement of more than one transaction by one swipe. In other words, if Parliament had intended that the transaction for the purchase of goods or services permitted dissection of one whole transaction into two - one provided by the issuing bank and the other by the acquiring bank, it would have made that intention explicit appropriately, such as for instance, by using words, like “as the case may be”. The absence of such manifest intention in Section 65 (33a) on the one hand, and the use of the conjunctive “and” in Section 65 (33a) (iii), clearly manifesting the intention that the issuing bank (a “person”) and an acquiring bank jointly provide the service, on the other - persuades me to hold that a dissection of one single transaction involving the purchase and sale of goods and services, is unwarranted. Therefore, with respect, I do not agree with Joseph, J’s view that Parliament contemplated that apart from an acquiring bank, any other person including an issuing bank, may render a separate service. Equally, the reasoning that activities of a bank – which may be the same one that issues a card and is also an acquiring bank in a transaction – are legally separate services because the nature of service (based on their respective contractual frameworks)rendered by the issuing bank is different from that of the service rendered by the acquiring bank, with respect, would not beaccurate. Similarly, I do not agree with the reasons given by Justice Joseph (i.e., that interchange fee does not fall within the service contemplated (i) between issuing bank and card holder; and (ii) it is not a gift) as to why interchange fee is a separate service either. There are several problems with segregating the components of “service” by the issuing bank and service by the acquiring bank, under Section 65 (33a) (iii); they are elaborated as follows: A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. 443 (a) (b) (c) In the event of segregation of the issuing bank’s component, the service element would no longer be a credit card service, but providing pure advance or credit of one kind, to the customer by the issuing bank which then falls within the broad description of banking and financial services [Section 65 (12)]. The segregation would ignore the reality of the business transaction which is the collection of a single MDR which includes two components i.e. the acquiring bank’s fee, and the issuing bank’s charge/ fee. The revenue admits that the MDR comprises both these fees. In these circumstances there is no warrant for discriminating the component which is retained by the issuing bank in the form of interchange fee, by saying that the issuing bank has to pay service tax on that as a separate element of its fee. The other anomaly would be that the data service provided by the card association (enabling use of software which facilitates instantaneous verification of the customer’s credentials, authentication of the transaction and the authorization of payment) is not required to undergo a separate treatment, as is now insisted upon in the case of the segregated transaction with the issuing bank. There are predominantly only two contractual arrangements (as entered into by the card association) which involve interaction of simultaneous or sequential occurrence of four sub-transactions, i.e. (i) the swiping of the card by the card holder at the merchant establishment (which does not include any pre-existing contractual agreement, but evidences the finalisation of a promise of a contract); (ii) followed by release by the acquiring bank to the merchant establishment of the consideration (which is backed by a pre-existing contractual agreement by which the the merchant is kept with POS machine A B C D E F G H 444 SUPREME COURT REPORTS [2021] 13 S.C.R. (d) establishment); (iii) the authentication of the customer’s credit by the issuing bank (which has no relationship with the acquiring bank or the merchant establishment, but does so only with the card holder); and (iv) the facilitation of the entire transaction by the card association (which has no contractual relationship with the card holder or the merchant establishment, but does so only with the acquiring bank and issuing bank). If these are the different stages/ limbs/components of the transactions as may be variously described, wherein some are backed by pre-existing contractual agreements, while others are not – the singling out of one such service, i.e. the credit provided to the cardholder by the authentication of the transaction by the issuing bank, for separate treatment by insisting that it should once again be subjected to levy on a literal construction of sub-clauses (33a) and (105) (zzzw), would not be logical. If the revenue were to in fact insist this to be the correct interpretation, it should logically and in the same breath, also insist that the acquiring bank file separate returns for the amounts it receives and the amount it collects and transmits to the network, in the same manner separately, as is insisted upon in relation to the component of service rendered by the issuing bank, which forms a part of the whole service that is provided in this case. [Paras 25, 26][548-D-H; 549-A-H; 550-A-H; 551-A-B]

#4. I agree with the reasoning of Justice Joseph, that the amount received by the issuing bank, as interchange income or fee, is not towards interest. However, as previously discussed, I do not agree with the conclusion, that the issuing bank provides a 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 unified service falling under clause (iii) of Section 65 (33a) and it cannot be broken up into its components and classified as separate services for classification. This is a well- A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. 445 accepted principle of classification. There is, in reality, one unified service provided by the acquiring bank to the merchant establishment for which gross value of consideration is the merchant discount rate (MDR). This single MDR includes the interchange fee. Therefore, the issuing bank’s service is subsumed into the service of the acquiring bank to make it a unified service to the merchant establishment. Evidently a merchant establishment does not have any contractual liability to pay inter-change fee to the issuing bank. [Para 27][551-B-C, E-F]

#5. The facts of the present case, in my opinion closely reflect the situation envisioned by the CBEC. The service provided by the acquiring bank is similar to the composite service provided by a GTA. The service element provided by an issuing bank is an integral part which gets subsumed in the single unified service provided by the acquiring bank to a merchant establishment. The principle enunciated by CBEC (in the circular) that even if a composite service, consists of more than one service, should nevertheless be treated as a single service based on the main or principal service and accordingly classified, is also applicable in the case of service provided by the acquiring bank and issuing bank. The latter’s role is subsumed into the service of the acquiring bank for which the gross consideration is received from the merchant establishment. The service element provided by the issuing bank in the credit card transaction at the merchant establishment is therefore not subject to service tax as it is incorporated in the service by the acquiring bank- as one service provided to the merchant establishment and the gross consideration (MDR) received by the acquiring bank includes the interchange fee shared with the issuing bank, by the acquiring bank. This is identical to the position in GTA service which was clarified by the Board in the above referred circular. This view is also supported by the newly enacted Section 66F(3) (b) which is effective from 1 July 2012, which states that naturally bundled services should be treated as provision of single service. The CBEC’s circulars are binding on the revenue. Therefore, interchange fee earned by the issuing bank which forms an integral part of service of the acquiring bank to the merchant A B C D E F G H 446 SUPREME COURT REPORTS [2021] 13 S.C.R. establishment, cannot be subjected to service tax. A credit card transaction- towards settlement of payment of a transaction, in sum, is an indestructible integrated service, whose constituent parts are inseparable from each other. For the reasons outlined above, there is disagreement with Joseph, J’s reasoning that Citibank had to independently file returns, in respect of the transaction by which interchange fees were collected. [Paras 29, 30][554-D-H; 555-A-B]

#6. As noted earlier, the charge (under Section 66) is on the “value of the taxable service referred….and collected in such manner as may be prescribed”. Valuation is in terms of the provision of Section 67, and Section 68 provides who has to pay service tax. Section 67 (1) enacts that the measure of tax levied, shall be on the consideration paid for the service, and provides for three contingencies. Section 67 (2) states that where the gross amount charged by a service provider, for the service provided includes service tax payable, the value of the taxable service shall be “such amount as with the addition of tax payable, is equal to the gross amount charged”. Section 67 (3) says that the “gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.” Section 67 (4) – which is subject to the previous sub-sections enacts that “the value shall be determined in such manner as may be prescribed.” The Service Tax (Determination of Value) Rules, 2006 was framed by the revenue, to assist the task of determining the value of services, to be taxed. Rule 2 (d) (i) defines what is provider of service. A co-joint reading of Section 67 and Rule 5 therefore establishes that the value of the entire service to the recipient is the basis of the service tax. Such being the case, if one accepts that the “gross amount” is the entire MDR – inclusive of the interchange fee, there is no mechanism, whereby the latter, i.e. the interchange fee can be brought into the tax net once again. Section 68, no doubt, enacts that a person providing a taxable service shall pay service tax at the rate prescribed in Section 66B and in the manner prescribed by the rules, and in accordance with the returns filed as may be prescribed under the rules. However, that is not the A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. 447 determinative point – it is the charging provision, i.e. Section 65, which speaks of the levy being upon the value of the service. Therefore, I respectfully disagree with Justice Joseph’s opinion that “every person providing taxable service to any person shall pay service tax at the rate...” which is based on the reasoning that because they are two different entities, they are each separately liable to pay service tax under Section 68 (despite settling the same transaction between the card holder and merchant establishment). [Paras 31-33][555-C-F; 558-E-H]

#7. In the present case, the MDR is thus the “gross value”; it includes the interchange fee. In the circumstances, since the collection of service tax is by the acquiring bank, which remits it to the revenue, the insistence that both elements should be segregated and separate returns filed reflecting the interchange fee, with respect, serves no purpose other than increasing paperwork, and burdening both banks and revenue officials with more work. If it is the aggregate amount (of which the interchange fee, is one part, and the acquiring bank’s amount, another part), the levy is satisfied. In such circumstances, the segregation of the whole MDR (which includes the interchange fee) by slicing it into two portions, i.e. the interchange fee and the acquiring bank’s charge, solely for the purpose of obliging all parties to reflect these in separate returns, only complicates issues. The other interpretation, would lead to a different aggregate, whereby service tax is levied on the entire MDR and once again, on the interchange fee, the issuing bank separately collecting service tax, results in an amount exceeding 14% towards tax. Both interpretations, in my opinion, cannot support separate levies, which would be contrary to Section 65. I am also unable to agree with Joseph, J. about the true construction of the notification exempting transactions below 2000/- from payment of service tax. It reflects that legislative intent/understanding is also limited to only the acquiring bank paying service tax, on an aggregate amount. If it were otherwise, the object of granting exemption would be defeated because the acquiring bank would then be collecting (or, correspondingly, the issuing bank would be deducting) the proportion of tax leviable on the interchange fee, A B C D E F G H 448 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H thus resulting in a partial levy of service tax on the quantum of transactions ( 2000/- and below) which are clearly exempt. In my opinion, therefore, Joseph, J’s opinion that by the exemption, the issuing bank cannot claim exemption on the ground that acquiring bank is exempted, therefore, is not accurate. It is also important to remember that what is taxed, is the value of the transaction and it is the transaction that is exempt, not the service provider. Therefore, the express use of only ‘acquiring bank’ is indicative that Parliament was well aware of how credit card transactions are conducted. [Paras 35, 36][561-E-H; 562-A-B, D-G]

#8. Therefore, not in agreement with the reasoning of Joseph, J. that “service provider” under Section 67(1)(i) imply that both the acquiring bank and issuing bank are service providers, and the gross amount on which the tax is collected, is not the aggregate of the value of the services provided by the different service holders. The judgement of Joseph, J. with 2 respect, is mainly concerned by the fact that Citibank retains before crediting the rest of the money towards settlement of the transaction; and therefore, in the absence of proof that acquiring bank has paid service tax on amount including the interchange fee, it is liable to pay for the specific service provided by it, as a distinct service provider. As explained in the earlier portion of this judgment, the activity or part played by the issuing bank is undoubtedly a service. However, it is part of the service; by itself, and without the role of the acquiring bank, it becomes a pure advance or loan transaction. However, the provision of service by the issuing bank and the acquiring bank together, triggers the levy. In other words, the component of service by the issuing bank is just that – a part of a single unified service, which for business convenience is structured in a manner, that the issuing bank retains 2, and tax is paid on the overall service, in the hands of the acquiring bank. There is no revenue leakage. The manner in which the credit card transaction, particularly the inter se transaction between the issuing bank and the acquiring bank is fashioned is such that instead of releasing the entire amount, in the first instance, and claiming the interchange fee later, the issuing bank retains the component of interchange fee. [Para 37][562-G-H; 563-A-D] COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. 449

#9. For the sake of clarity and completeness, I have briefly summarised my position in relation to each of the conclusions drawn by Joseph, J. in his judgment (paragraph 109): (A) On Conclusion I: I am in agreement that the respondent- Citibank, as issuing bank was providing service, as found by the Commissioner. However, this service was a part of a single unified service – of settling transactions – which is provided by both the acquiring and issuing bank (which in some circumstances may well be the same bank). (B) On Conclusions II, III, and IV: I am in agreement with J. Joseph that prior to 01.07.2012, the service of issuing bank fell within Section 65 (33a) (iii); interchange fee cannot be treated as interest, as argued by Citibank; and lastly the case that credit card transaction, being a transaction in money and therefore excluded from the definition of “service” in Section 65B (44) is unacceptable. (C) On Conclusion VI: I agree that the plea to dismiss the appeals solely on the ground that no appeal was carried against the Order in ABN Amro (supra) has no merit. (D) On Conclusion V, VII-X: Service tax is undoubtedly a value added tax. However, having characterised the service to be a single unified service – wherein service tax, by way of business convenience, is collected from/remitted by the acquiring bank on the value (whole MDR which includes the interchange fee that is retained by the issuing bank) taxable for the single service rendered by both the acquiring and issuing bank – Citibank cannot be called upon to pay the service tax again as this would result in double taxation. In view of my previous discussion, I do not agree with the reasoning in ABN Amro (supra). For the same reasons, I am of the opinion that the question of remand to the tribunal does not arise. The only point of contention seems to be whether they were reflecting the payment of service tax separately in their ledgers, as issuing and acquiring bank. However, as a result of the reasons already elaborated, this is rendered to be a purely academic question. A question of returns should not detain this Court, because the business reality A B C D E F G H 450 SUPREME COURT REPORTS [2021] 13 S.C.R. is that every bank is both an issuing bank and an acquiring bank, and it is nobody’s case that the banks are not filing their returns on service tax. [Para 38][563-E-H; 564-A-D] Mafatlal Industries Ltd v. Union of India (1997) 5 SCC 536 : [1996] 10 Suppl. SCR 585 – followed. Govind Saran Ganga Saran v. Commissioner of Sales Tax 1985 Supp SCC 205; Association of Leasing and Financial Service Companies v. Union of India (2011) 2 SCC 352 : [2010] 13 SCR 381; Standard Chartered Bank & Ors. v. CST, Mumbai I & Ors. 2015[40] S.T.R.104 (Tri. Del); ABN Amro Bank v. Collector of Central Excise 2011 (187) ECR181 (Tri. Delhi); Royal Bank of Scotland) v. Commissioner of Central Excise 2018 TIOL 2018 CESTAT.; Hyderabad Asbestos Cement Products & Anr. v. Union of India (2000) 1 SCC 426 : [1999] 5 Suppl. SCR 155; Green v Premier Glynrhonwy Slate Co. (1928) 1 KB 561; R v Oxfordshire County Council and Others, Ex Parte Sunningwell Parish Council 1999 (3) All ER 385; Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central & Ors (2008) 14 SCC 1519; Union of India v. Inter Continental Consultants & Technocrats (2018) 4 SCC 669 : [2018] 10 SCR 309; Commissioner of Service Tax & Ors. v. Bhayana Builders Private Limited & Ors (2018) 3 SCC 782; Cosmic Dye Chemical v. Collector Of Central Excise (1995) 6 SCC 117; M/s Uniworth Textiles v. Commissioner of Central Excise (2013) 9 SCC 753 : [2013] 3 SCR 27 referred to. Case Law Reference [1996] 10 Suppl. SCR 585 followed [2010] 13 SCR 381 referred to [1999] 5 Suppl. SCR 155 referred to [2018] 10 SCR 309 [2013] 3 SCR 27 referred to referred to Para 7 Para 7 Para 24 Para 34 Para 38 A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. 451 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8228 A of 2019. From the Judgment and Order dated 16.11.2018 of the Hon’ble Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Chennai in Appeal No.ST/40923 of 2017-DB. With Civil Appeal No. 89 of 2021. Balbir Singh, ASG, Sree Kumar C. N., Sr. Adv., Zoheb Hossain, Rupesh Kumar, Anmol Chandan, Mukesh Kumar Maroria, B. V. Balaram Das, Advs. for the Appellant. Arvind P. Datar, Sr. Adv., Kumar Visalaksh, Nishant Shah, Udit Jain, Ms. Sweta Rajan, Archit Gupta, Ms. Samyuktha Srinivasan, Mahfooz Ahsan Nazki, Advs. for the Respondent. The Judgment of the Court was delivered by K. M. JOSEPH, J.

#1. These Appeals are maintained under Section 35L(1)(b) of the Central Excise Act, 1944, read with Section 83 of Chapter V of the Finance Act, 1994. They are directed against the Orders dated 16.11.2018 and 20.11.2019, passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai (hereinafter referred to as ‘the Tribunal’, for short).

#2. By the impugned Orders, the Tribunal set aside the Final Orders, by which the Principal Commissioner Service Tax, Chennai, found the Respondent/Bank, liable to pay service tax, penalty and interest on the amount of the “interchange fee” received by it.

#3. The Respondent is a Bank. It is registered with the Service Tax Commissionerate Chennai, under the category “Banking and other financial services, business auxiliary services, charge card and other card payment services, manpower recruitment or supply services, among other services”. An internal audit of group of the Service Tax Commissionerate, Chennai found that it was receiving interchange fee, which formed part of the gross amount billed to the customer. Show Cause Notices were issued to the Respondent, calling upon it to show why it should not be visited with service tax on the interchange fee, besides penalty and interest. The notices covered periods prior to 01.07.2012 and also thereafter. The Respondent filed its explanation to B C D E F G H 452 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H which we shall refer to hereinafter. In short, its case is that the Respondent is not performing any service so as to render it exigible to service tax on the interchange service. The interchange fee is in the nature of interest it has earned in the credit card transaction with the customer. It is also contended that, in fact, the interchange fee has already been subjected to service tax in the hands of the acquiring bank. Therefore, it was pointed out that if the Respondent is again visited with service tax, it would be plainly impermissible as it would amount to double taxation. It was rejecting the contentions of the Respondent that the Principal Commissioner found that the Respondent did perform services and it, therefore, earned the interchange fee. It is further found that there is no evidence to show that the acquiring bank had paid tax on the amount which was earned as interchange fee by the Respondent. The case of interchange fee being interest and a ‘transaction in money’ was rejected.

#4. The Tribunal, on the other hand, by the impugned Order, has essentially purported to place reliance on the Order passed by the Tribunal in M/s ABN Amro Bank v. Commissioner of Central Excise and Customs dated 23.07.2018 and found that the Respondent is not liable, resulting in the Order of the Principal Commissioner being set aside.

#5. Heard Shri Balbir Singh, learned Additional Solicitor General, on behalf of the Appellant and Shri Arvind P. Datar, learned Senior Counsel, appearing on behalf of the Respondent.

#6. Service Tax had its humble beginnings with the passing of the Finance Act, 1994 with only three taxable services. Over the years, a large number of taxable services came to be added by various Finance Acts. Before I refer to the taxable service in question, I must note the statutory framework. THE STATUTORY FRAMEWORK FOR SERVICE TAX

#7. The statutory framework of the service tax in India is traceable to the Chapter V and Chapter VA of the Finance Act, 1994 (hereinafter referred to as ‘the Act’, for short). Section 64(3) provides that the Chapter V, shall apply to taxable services provided on or after the commencement of the Chapter. The appointed day is 01.07.1994. Section 65 is the definition clause. Section 65, after being substituted by Finance Act, 2003 w.e.f. 14.05.2003, inter alia, provides for the following definitions, which I may notice. Section 65(7) defines “assessee” as meaning a person liable to pay the service tax and includes his agent. COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 453

#8. Section 65(105) defines “taxable service”. Credit Card services was taxed as a part of banking and financial services. It was introduced w.e.f. 16.07.2001 under Section 65(10). On its introduction w.e.f. 16.7.2007, Section 65(12) defined banking and other financial service (BOFS for short), as including credit services.

#9. There were certain amendments to this provision, which are not relevant to the present case, as credit card services continued as part of banking and financial services. THE NEW REGIME USHERED IN BY VIRTUE OF THE INTRODUCTION OF SECTION 65(33A)OF THE FINANCE ACT, 2006.

#10. By virtue of the Finance Act, 2006, credit card service was omitted from the definition of Section 65(12), which was the provision which defined banking and other financial services. With effect from 01.05.2006, Section 65(33a) came to be inserted and it reads as follows: “65(33a) “credit card, debit card, charge card or other payment card service” includes any service provided,— (i) by a banking company, financial institution including non-banking financial company or any other person (hereinafter referred to as the issuing bank), issuing such card to a card holder; (ii) by any person to an issuing bank in relation to such card business, including receipt and processing of application, transfer of embossing data to issuing bank’s personalisation agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation; (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 non-banking financial company or any other person, who makes the payment to any person who accepts such card; (iv) in relation to joint promotional cards or affinity cards or co- branded cards; A B C D E F G H 454 SUPREME COURT REPORTS [2021] 13 S.C.R. (v) in relation to promotion and marketing of goods and services through such card; (vi) by a person, to an issuing bank or the holder of such card, for making use of automated 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;” [Section 65(33a) of the Act]

#11. Still, I may also notice that Section 65(105) (zzzw) refers to any service provided or to be provided to any person by any other person, in relation to credit card, debit card, charge card or any other payment card service, in any manner, as a taxable service.

#12. Till 01.07.2012, Section 66 of the Act was the charging section. It reads as under: “66. Charge of Service Tax-There shall be levied a tax (hereinafter referred to as the Service Tax) at the rate of twelve per cent. of the value of taxable services referred to in sub-clauses (a), (d), (e), (f), (g.) (h), (i), (j), (k), (1), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zh), (zi), (zj), (zk),(zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), (zzy), (zzz), (zzza), (zzab), (zac), (zzad), (zzze), (zzzf), (zzzg,) (zzzh), (zzzi), (zzzj), (zzzk), (zzz³), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zzzu). (zzzv), (zzzw), (zzzx), (zzzy), (zzzz), (zzzza), (zzzzb), (zzzzc), (zzzzd), (zzzze), (zzzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzj), (zzzzk), (zzzzl), (zzzzm), (zzzzn), (zzzzo), (zzzzp), (zzzzq) (zzzzr) (zzzzs) (zzzzt) (zzzzu) (zzzzv) and (zzzzw) of clause (105) of section 65 and collected in such manner as may be prescribed.” A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 455 Provided that the provisions of this section shall not apply with effect from such date as the Central Government may, by notification, appoint.”

#13. With effect from 01.07.2012, Section 66B was inserted as the charging section and it reads as follows: “66B. Charge of service tax on and after Finance Act, 2012.— There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen percent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.” Service has been defined in Section 65B(44). The Negative list is contained in Section 66D.

#14. I have referred to these provisions as the impugned order covers periods embraced by Section 66 and 66B.

#15. The next provision to bear in mind Section 67. Section 67 deals with valuation of taxable service for charging. It reads as follows: A B C D “67. Valuation of taxable services for charging Service Tax. - (1) Subject to the provisions of this Chapter. Service Tax chargeable on any taxable service with reference to its value shall, - E (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of Service Tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of Service Tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. F G H 456 SUPREME COURT REPORTS [2021] 13 S.C.R. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner asmay be prescribed.”

#16. Section 68 deals with the persons responsible for payment of service tax and it reads as follows: “68. Payment of Service Tax. – (1) Every person providing taxable service to any person shall pay Service Tax at the rate specified in section 66 in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in sub-section (1), in respect of “such taxable services as may be notified” by the Central Government in the Official Gazette, the Service Tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this chapter shall apply to such person as if he is the person liable for paying the Service Tax in relation to such service. “Provided that the Central Government may notify the service and the extent of Service Tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the Service Tax shall be paid by the service provider.”

#17. Section 69 deals with registration. It reads as follows: “69. Registration. — (1) Every person liable to pay the service tax under this Chapter or the rules made thereunder shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise. (2) The Central Government may, by notification in the Official Gazette, specify such other person or class of persons, who shall A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 457 make an application for registration within such time and in such manner and in such form as may be prescribed.” A

#18. The relevant Rule in the Service Tax Rules 1994 is Rule 4.

#19. Section 70 deals with furnishing of return and it reads as follows: “70. Furnishing of returns. — (1) Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency and with such late fee not exceeding twenty thousand rupees, for delayed furnishing of return, as may be prescribed. (2) The person or class of persons notified under sub-section (2) of section 69, shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed.”

#20. Rules 7 of the Rules deals with the Return. As I have already noted for the period prior to 01.07.2012, the Act imposed Service Tax on the value at the rate mentioned of the value of the taxable services which were referred to thereunder (various provisions enumerated in Section 65 clause 105) which included Section 65 (105)(zzzw), which reads as follows: “(105) “Taxable service” means any service provided or to be provided – (zzzw) to any person, by any other person, in relation to credit card, debit card, charge card or other payment card service, in any manner;”

#21. Necessarily, this must be read with Section 65 (33a), which I have adverted to. This remained the scheme of service tax till 01.07.2012. For the period after 01.07.2012, there is a paradigm shift as Section 66B took over as the charging section and thereunder what is relevant is to ascertain whether there is a service and if there is service whether it is included in the negative list. If there is service and it is not included in the negative list and the service is provided or agreed to be provided in the taxable territory by one person to another the charge under section 66B is attracted. The method of collection is done in the manner provided in the Rules. Service has come to be defined in Section 66B (44) as follows: B C D E F G H 458 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G “(44)”Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include— (a) an activity which constitutes merely, — (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force.” THE DECISION OF THE TRIBUNAL IN STANDARD CHARTERED BANK AND ORS. V. CST, MUMBAI-I AND OTHERS1.

#22. The said decision is reported in 2015 [40] S.T.R. 104 (Tri. - Del). A larger Bench of the Tribunal (three Members) went on to consider whether the new definition of the credit card services under Section 65(33a) read with Section 65(105)(zzzw), was substantive or it was a continuation of the levy under Section 65(10) or Section 65(12). It also considered the question, whether provisions under Section 65(33a) would apply retrospectively from 16.07.2001.

#23. I notice the following views expressed by the Tribunal: “27. On a literal construction of the relevant provisions it appears at first blush that any service provided to a customer by a banking company etc. in relation to credit card services, is a taxable service. Acceptance of this construction would lead to infinite expansion of the taxable event. Not only would credit facilities provided by an issuing bank to its card holder fall within the scope of this service but services such as receipt and processing of credit card applications; transferring of embossing data to the H 1 2015 [40] S.T.R. 104 (Tri. - Del) COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 459 issuing bank’s personalisation agency; teller machine personal identification number generation; renewal or replacement of a credit card; change of address; payment updation and statement generation; settlement of amounts transacted through credit card; services provided by the owner of trade marks or bank name to an issuing bank for use of the trade mark or brand name; and a host of other services which are interspersed in the sequence of transactions occurring on the use of a credit card, would all be services provided in relation to credit card services. These services are expressly enumerated in sub-clauses (ii), (iii), (vi) and (vii) of Section 65(33a), w.e.f. 01.05.2006. On Revenue’s interpretation, these services are subsumed within credit card services on account of the “in relation to” phrase. Wherever an issuing bank hives of some of its activities in relation to credit card operations, such as receipt and processing of credit card applications and the like and these services are provided by a outside agency, these would nevertheless fall within the ambit of BOFS, though not statutorily so identified and expressed. The scope of credit card services and BOFS would therefore be perpetually nebulous and its contours indeterminate, assessees contend. Assessees also urge that acceptance of Revenue’s interpretation would lead to perpetual ambiguity in ascertaining the range and variety of transactions falling within the ambit of credit card services and such interpretation should therefore be avoided on the principle of doubtful and ambiguous taxation and inchoate specification of the taxable event in a fiscal legislation. “44. Board circular dated 09.07.2001, a contemporaneous executive guidance issued to clarify the scope of credit card services proposed in Finance Bill, 2001 clearly explained the reach of this provision as services whereby credit facility is provided by banks; and no other services are mentioned in the circular. The Act has not defined even illustratively, the nature and variety of services which amount to credit card services. From the orders passed in several Commissionerates it is clear that quite a few, in fact several adjudicating authorities had considered the scope of credit card services as not extending to those provided by banks or financial institutions for which consideration in the nature of interchange fee or ME discount is received/retained by providing A B C D E F G H 460 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H banks. ABN Amro Bank/Royal Bank of Scotland, Standard Chartered Bank, HDFC Bank, HSBC Bank Limited, ICICI Bank, Citibank and American Express Bank had all considered the scope of credit card services as not extending to activities on which interchange fee or ME discount is received. It is inconceivable and would strain limits of logical inference to assume that all these banks consciously misconstrued the ambit of credit card services, with a view to evade tax. For the above reasons as well we are compelled to the interpretation that the scope of services falling within the ambit of credit card services, notwithstanding the phrase “in relation to” in the enumerative provision of the Act during the relevant period, was ambiguous, uncertain and invites purposive, dynamic and strained interpretation. The express enumeration of several services falling within the ambit of card services (including credit card services) post 01.05.2006, in drafting the definition of this service in Section 65(33a) eradicates the ambiguity and uncertainty regarding scope of services covered under card services. The Circular dated 28.02.2006 issued by TRU, Ministry of Finance to explain the ambit of services introduced by Finance Bill, 2006 clarifies (in para 3.19) 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”. The speech of the Hon’ble Finance Minister on 28.02.2006 while presenting the Budget for 2006-07 explains the purposes underlying introduction inter-alia of card services. At para 153 of the speech, the Hon’ble Minister states: I also propose to expand the coverage on certain services now subject to service tax. I do not wish to burden the house with the details which are available in the Budget paper. COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 461 The following is clear from Section 65(33a) read with Section 65(105)(zzzw) of the Act. A (a) The scope of service tax levy is extended to services provided in respect of other cards such as debit card, charge card or other payment card, apart from credit card; (b) The several and intervening services which occur in the use of cards are enumerated in sub-clauses (i) to (vii) of the definition, clearly conveying the intention to cover these expressly enumerated services as taxable events under the provisions; (c) In Section 65(105)(zzzw) while retaining the phrase “in relation to”, the phrase “in any manner” is added. The precision and clarity of the detailed drafting methodology employed in the Finance Act, 2006, compels the inference that Parliament not only expressed the intention to expand the scope of the taxable service to cover services provided “in relation to” other cards as well but has further and expressly expanded the reach of taxation to services which otherwise may not indisputedly fall within the ambit of card services. Section 65(33a) thus excised ambiguity, uncertainty and inchoateness in the statutory text.” (Emphasis supplied)

#24. I may notice the conclusion as set out: “47. CONCLUSIONS: We answer the reference dated 16.08.2013 as under: (a) On point No. (i) in the order of reference, we hold 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; (b) On point No. (ii) we hold that sub-clause (iii) in Section 65(33a) is neither intended nor expressed to have a retroactive reach i.e. B C D E F G H 462 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H w.e.f. 16.07.2001. Services enumerated in these sub-clauses are not implicit in the scope of credit card services; (c) On point No. (iii) of the reference, we hold 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. (d) On point No. (iv), we hold 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.” THE DECISION OF THE TRIBUNAL IN M/S ABN AMRO BANK NV PRESENTLY KNOWN AS ROYAL BANK OF SCOTLAND NV V. COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SEVICE TAX, NOIDA [DECISION RENDERED ON 23.7.2018]2

#25. This decision is the relied upon order in the impugned order. The period in dispute in the said case was May, 2006 to February, 2008. I may notice paragraphs-2, 6, 8 and 9. On the said basis, the Tribunal proceeded to set aside the order impugned, which was demand for service tax along with interest and penalty. “2. The facts of the case are that the appellant is a banking company and engaged in the business of issuance of ‘credit cards’ to their customers. The credit cards business having a system to operate, how the system is operated i.e., a bank issue the credit card is known as Issuing Bank to its customers When the customer uses that credit card, he goes to the Merchant purchase the goods by swiping the card, thereafter immediately transaction goes to the acquiring bank. The acquiring bank makes the payment to the merchant. At that time, the acquiring bank charges the certain amount for the service provided by them to the merchant. On that amount, the acquiring bank is discharging their service tax liability. Out of that amount of service retained by the acquiring bank, some amount is transferred to the issuing bank. The case of the 2 2018-TIOL-2811-CESTAT / MANU/CN/0079/2018 COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 463 Revenue is that the issuing bank receiving certain commission from the acquiring bank, on that amount they are liable to pay service tax under the category of ‘Credit Cards Services’ under Section 65(33A) read with Section 65(105)(zzzuu) of Finance Act, 1994. To this effect the audit took place during the period from 2007-2008 and thereafter a show cause notice was issued to demand of service tax from the appellant for the period from May, 2006 to February, 2008 by way of show cause notice dated 19.09.2011. The matter was adjudicated and the demand of service tax was confirmed against the appellant alongwith interest and various penalties were imposed. Against the said order, the appellant is before this Tribunal.

#6. It is a fact on record that the acquiring bank is discharging his service tax liability on the amount in question, in that circumstances, no service tax is payable by the appellant (and the said fact has not been disputed by the learned AR during the course arguments) as held by the Hon’ble Allahabad High Court in the case of Commissioner of C. Ex. Lucknow vs. Chotey Lal Radhey Shyam reported at MANU/UP/3815/2017 : 2018 (8) G.S.T.L. 225 (All.).

#8. On going through the said definition, we find that if the appellant is receiving certain commission in relation to settlement of any amount, then and only then the said activity is covered under credit card services. Admittedly, the appellant is not engaged in any activity of settlement of the amount. In fact, the appellant is not the settlement agency and is acting only as issuing bank. It is admitted position by the learned Commissioner in the impugned order. In that circumstances, we hold that the amount received by the appellant does not qualify as the ‘credit cards services’. Therefore, we hold that the demand against the appellant is not sustainable.

#9. Moreover, we find that in this case show cause notice has been issued by invoking the extended period of limitation whereas the activity of the appellant was known to the Department much earlier and a show cause notice for the earlier period was also issued to them, in that circumstances, relying on the decision of the Supreme A B C D E F G H 464 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H Court in the case of Nizam Sugar Factory vs. Collector of Central Excise, A.P. reported at MANU/SC/8820/2006 : 2006 (197) E.L.T. 465 (S.C.) where as it held that the extended period of limitation is also not invocable, we hold that the demand is highly barred by limitation.” (Emphasis supplied) SHOW CAUSE NOTICES

#26. The first of the Show Cause Notice (hereinafter referred to as ‘SCN’, for short) is SCN No. 141 of 2013 dated 24.04.2013, which related to the period October, 2007 to June, 2012. The second SCN No. 258 of 2014 is dated 23.09.2014. This SCN relates to the period from July, 2012 to December, 2013. The third SCN No. 25 of 2015 dated 02.03.2015 related to the period January, 2014 to March, 2014. The fourth SCN No. 97 of 2015 dated 11.08.2015, covered the period April, 2014 to March, 2015. Apart from the first SCN, the later SCNs related to the period covered by Section 66B of the Act wherein the Negative List Regime was put in place.

#27. Of relevance is the following paragraphs in SCN No. 141 of 2013 dated 23.04.2013: “2. During the course of audit of accounts of the assessee conducted by Service tax Internal Audit Group of Service tax Commissionerate, Chennai, it was noticed that the assessee was issuing Credit Cards to its customers; that Credit Card transactions typically involve two banks - an issuing bank - and an acquiring bank; that issuing bank issues credit cards to its customers; that acquiring banks contract merchant establishments to accept credit card payment for the goods or services sold to the customers and to facilitate such transactions, the acquiring banks provide the required infrastructure like Card Swiping Terminal (Point of Sale Machines), payment gateway etc.; that assessee’s Credit Card customers are using Point Of Sale (POS) machines installed by acquiring banks in various merchant/service establishments: that the acquiring banks make payments to the merchant establishments/ service establishments and charge them a pre-contracted rate known as Merchant Discount Rate (MDR) to facilitate the credit card transaction; that acquiring banks submit the transactions settled by Merchant establishments to the assessee (Issuing Bank) COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 465 through Card Association and in-turn the assessee makes payments to the acquiring banks through Card Association; that Card Association (Master Card, Visa and Diners Club International) acts as a bridge between the assessee (issuing bank) and acquiring banks; that Card Association provides the required network and platform to the issuing banks and acquiring banks for facilitating the cards transactions; that normally acquiring bank submits the transactions (settled by merchants) to the Card Association in a standard file format for onward submission to the assessee (issuing bank); that the standard file format contains details like card number, acquirer reference number, transaction amount, interchange fee, date of transaction, nature of merchant business etc, that based on the transaction details received from the Card Association, the assessee (issuing bank) bills the customer for gross amount and pays the gross amount less interchange fee (which is credited by the acquiring banks) by remitting the same through the card Association; that assessee (issuing bank) normally receives the gross amount from their customers based on the monthly billing statement with a due-date by which the payment needs to be made by the customer; In this regard it appears that the interchange fee is nothing but a share of the MDR earned by the assessee and forms part of their service income in relation to Credit card or other payment card services.

#4. On being pointed out by audit, the assessee vide letter dated 12.04.2013 stated that the gross amount of consideration received for taxable service under the taxing entry of “Credit Card Services”, has already been subjected to service tax, in the hands of acquiring bank; that the interchange fee received by the issuing bank is just a share of the MDR received from acquiring bank; that issuing bank is not rendering any service to acquiring bank and hence no service tax is applicable on the proportionate share of MDR received by issuing bank in the form of interchange; that taxing the interchange as share of MDR, in Hands of issuing banks would amount to double taxation as the gross MDR has already been subjected to service tax; that since service tax was paid on the entire MDR, their liability, if any, should be adjusted accordingly. They also enclosed (1) a Note on Credit card transactions and A B C D E F G H 466 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H applicability of Service tax and (2) an excel sheet showing the workings of the interchange earning and details of MDR. However, on their own accord, the assessee paid an amount of Rs.15,00,00,000/- towards Service Tax vide Challan No. 11046 dated 28/03/2013. “Para 5. The contention of the assessee that they are not rendering any service to the acquiring bank does not appear to be correct. When a credit card holder of the assessee (issuing bank) uses the card at a merchant establishment for making a purchase, the account of the merchant establishment is settled directly by the card issuing bank or through an acquiring bank. The fact of issue of credit card by the assessee as the issuing bank only enables the customer to avail cashless purchase or service from the merchant establishment which is subsequently settled by the acquiring bank and the discount (interchange fee) so earned is shared with the assessee(card issuing bank). It therefore, appears that the assessee have earned service income namely interchange fee in relation to credit card services and the interchange fee earned by the assessee appears to be taxable under Section 65 (105) (zzzw) of the Finance Act, 1994 read with Section 65(33a) ibid; The fact of payment of service tax on the interchange fee by the acquiring bank does not exempt the assessee from payment of service tax on the consideration received by them towards rendering of service as each person providing service is liable to pay service tax for the services rendered by them.”

#28. I notice that in the second of the SCN dated 23.09.2014 also, which was, in fact, issued in continuation to the first SCN dated 23.04.2013, and issued, proceeding on the basis that the respondent was still receiving interchange fee from the acquiring bank, which was not being subjected to service tax and paragraph 5 of the such Show Cause Notice repeats what has been stated in paragraph 5 of the first Show Cause Notice. THE CONTENTIONS NOTICED BY THE COMMISSIONER

#29. The interchange fee has already been subjected to tax as the entire merchant discount, of which, the interchange fee is a part, has been taxed. The essential preconditions to tax under the Finance Act is that there should be a service, the service provider, service recipient and there should be consideration for the service. It was contended by the COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 467 respondent that there is no service provided by the assessee to the acquiring bank. The contention was that the acquiring bank deducts the merchant discount and pays the balance to the merchant establishment. The discount so borne by the merchant establishment results in income the beneficiaries being the respondent and the acquiring bank. The amount due to the issuing bank is settled by retention, i.e., the Card Association debits the account of the issuing bank and disperses the same to the acquiring bank. Payment to the Card Association is made separately by the issuing bank and the acquiring bank. There is contractual relationship between the merchant establishment and the acquiring bank. The issuing bank is not engaged in any service to the acquiring bank and the portion of the fee retained by the assessee is not in respect of any service being provided by the assessee to the acquiring bank. There is no service provider and service recipient relation between the issuing bank and acquiring bank. They are participants in the credit card transactions. For the service rendered by the acquiring bank to the merchant establishment, the acquiring bank pays service tax on the gross consideration. The disbursements made between the assessee and acquiring bank are not for any service provided by the assessee to the acquiring bank. The acquiring bank does not hire the assessee to provide any service. The interchange fee is not a consideration for any service. The interchange fee is nothing but a portion of the service tax paid merchant discount and is not a separate consideration paid to the assessee in lieu of any service. The perusal of Section 67 of the Act makes it clear that service tax is applicable on the gross amount charged by the service provider for a consideration received in monetary terms in relation to the provision of services. The value chargeable to service tax is by the mandate of law required to be restricted only to the consideration for the service rendered and no amount beyond this can legally be charged to service tax. Board Circular No. 65/14/2003 dated 05.01.2003 was relied upon. The consideration for the provision of credit card services is recovered by the acquiring bank from the merchant establishment and the portion of the same is in respect of service provided by the assessee.

#30. Therefore, the gross amount charged for the credit card services is the merchant discount which will form the basis for the levy of service tax in terms of Section 67. All activities are undertaken by the participants to support a transaction where a merchant establishment is able to accept a payment from a credit card holder through the modality of credit cards. The gross value of the service rendered, having suffered A B C D E F G H 468 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H service tax, the Show Cause Notices were impugned. There is reference to case law in support of the same. Only the value which has a nexus with the services rendered was liable to subject to service tax. Any attempt to levy service tax would amount to double taxation. There is no escapement of tax. There would be duality of same tax. Transaction in money (relatable to the Show Cause Notices for the period after the negative list was introduced) is not liable to service tax was the contention. There is provision of service only in the first leg of the transaction wherein the acquiring bank pays the merchant establishment after deducting the merchant discount, which is subjected to tax. The subsequent transaction is purely transaction in money and there is no inter se provision of service between the parties. The Show Cause Notices were alleged to be barred by limitation. There is no deliberate intention on the part of the assessee to not disclose correct information. The information about the interchange fee has been disclosed by the acquiring bank. In this case, there is interpretational issue. Likewise, the demand for penalty and interest was opposed. A case for penalty under Section 78 was not made out. There was no mens rea. There is no supression by the respondent. In regard to later Show Cause Notices, there were certain supplementary contentions raised including that interchange fee is only in the nature of interest on loan. FINDINGS OF THE COMMISSIONER

#31. The Commissioner, inter alia, has examined the terms of the relevant extracts of the agreement entered into between the respondent and VISA Worldwide, the Card Association. After referring to various Clauses in the Agreement, the Commissioner finds that a Card Association enters into an agreement with the issuing bank, merchant establishment and acquiring bank, to facilitate the card transactions. The participation by the assessee enables provision of various services to the card holders by the issuing bank. That is, in view of the participation, the issuing bank is enabled to issue credit card and extend services at various merchant establishments, business/Government Entities. Card Association provides the network for facilitation of the transaction flow and levy fee for various services.

#32. I may notice the paragraph-8.7: “8.7. To facilitate the transaction, when a person make a purchase using a card, the following limbs of transactions are involved the Merchant establishment swipes the card of the person who has COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 469 been issued with such card by the ‘issuing bank’ in the ‘Point of Sale’ extended by the ‘acquiring bank’ who has agreed to settle the Merchant establishment, the amount for which purchase is made by the card Holder; when the card is swiped, the details of the Card, purchase details are transmitted to the issuing bank through the Card Association and is verified and retransmitted thereupon on approval the cardholder is enabled to make the purchase, the Merchant establishment furnishes the statement of purchases through such cards to the acquiring bank, who files the statement with the Card association; the card association debits the issuing bank the amount due to the acquiring bank less the interchange fee which accrues to the issuing bank for verifying and permitting the transactions. The acquiring bank releases the amount to the Merchant Establishment after deducting the MDR as agreed upon by them. The role of the Card associations in these transactions is vital and a11 the key players, the issuing bank, the acquiring bank and the Merchant establishment are in contractual agreement with the card associations. Apart from the contractual agreement with the card Associations, the issuing bank is in contractual agreement with the card holder for allowing the various credit limits for purchase of goods or services and return of the credit extended in due course at the appropriate rates of interest. Similarly, in certain cases the acquiring banks are in contractual agreements with the merchant establishments for providing the ‘Point of Sale’ and for crediting, the amount of purchase handled through the P0S. In the above transactions to facilitate the transactions, both the issuing, bank and the acquiring bank pays the card association at the rates agreed upon, the Merchant establishment accepts a discounted amount on the purchase enables by them through the POS of the Acquiring bank; the acquiring banks part with the interchange fee fixed by the contractual agreements with the card Associations to the issuing bank. The issuing bank collects the amount of purchase from the card holder as per the terms and conditions agreed upon by them with the card holder. In the case at hand it is evident that extending the POS to the Merchant establishment and paying, the discounted amount to the ME are covered by a contractual agreement between the acquiring bank and ME on one hand and Acquiring bank, and Card Association on the other hand; similarly the card holder 1s A B C D E F G H 470 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H enabled to undertake transactions through the card vide the contractual agreements between the card, holder and the issuing bank on one hand and the issuing bank and Card Association on the other hand. The entire gamut of activities are covered under three compacts i.e. card association with both acquiring bank and issuing bank acquiring bank with ME and issuing bank with card holder. The charges involved in the extension of service’s apart from payment of cost to the Merchant Establishment and repayment to the issuing bank by the card holder are (the MDR retained by the acquiring bank) the charged paid by the acquiring bank and issuing bank to the Card Associations; and the interchange fee retained by the issuing bank. I find that the interchange fees and for facilitating the purchase using the card and not for lending the money for the purchase as claimed by the assessee. The credit card is issued to facilitate credit purchase and in due course the credit extended is received back with appropriate interests from the card holder in line with the contractual agreement the issuing bank has with the card holder, while the interchange fee is the consideration that accrues to the issuing bank for verifying, facilitating and extending the purchase value in line with the contractual agreement the issuing bank; has with the card association and taking the risk for collection of amounts from the Card holder. In view of the above, I find that the interchange fee is a consideration received as are suit of contractual agreements with the card associations to facilitate purchase of goods or services. Therefore, I find that the argument that there is no service or service receiver provider relationship is not available or the fee is not a consideration as it is not negotiated upon do not hold merits. As per Section 67 of the Act, the gross value of the service is the amount received for provision of service. It is nowhere stipulated in law that the consideration must be negotiable. However, issuing bank while entering into agreement with the Card association agrees to abide by the rates and charges and therefore the argument that the consideration is not negotiated is not factual as by agreeing to the rates, they are negotiated. The definition of credit card services as it existed upto 30.06.2012, clearly states that the services provided the card associations to the issuing bank is a taxable service and effective from 01.07.2012, activity provided by one person to another for a consideration is a service.” COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 471

#33. As regards the case of the respondent that service tax is paid by the acquiring bank on the MDR, it is stated that no proof has been produced by the respondent. To quote: “The interchange fee and the MDR are not the same amount. The assessee has stated that service tax is being paid by the Acquiring bank on the MDR but has not furnished any proof to that extent. Moreover, the interchange fee is the consideration given to the issuing bank for validating the e-transaction and the MDR is the consideration for the Acquiring bank for setting the Merchant Establishment.”

#34. Still further, the Commissioner went on to find, in regard to the question, whether there was suppression by the respondent relating to non-payment of service tax on interchange fee. It was found that the respondent had received interchange fee. It was further found that when the legal provision is clear and explicit, the act of not paying service tax revealed a positive act on the part of the respondent. Even if they were under the belief that the charges are not liable to service tax, they should have approached the Department with the details so that the Department could have examined the correctness of the claim. With the introduction of self-assessment, there being no ambiguity in the provisions of Statue, the onus of making proper assessment rests with the assessee under Section 70. The period of limitation would commence from the date of the knowledge of the Department. Reliance was placed on Judgment of this Court in Commissioner of Central Excise, Vishakhapatnam v. Mehta and Company3. Penalty was also found justified. Finally, the Commissioner proceeded to confirm the demand for service tax, interest under Section 75, penalty under Section 78 and also the penalty of Rs. 10,000/- under Section 77(2). THE IMPUGNED ORDERS OF THE TRIBUNAL

#35. The Tribunal, in Order dated 16.11.2018, passed a reasoned Order, which is impugned in Civil Appeal No. 8228 of 2019.

#36. The said Order came to be followed by the Tribunal by passing the Order dated 20.11.2019, which is impugned in Civil Appeal No. 89 of 2021. 3 (2011) 4 SCC 435 A B C D E F G H 472 SUPREME COURT REPORTS [2021] 13 S.C.R.

#37. In Order dated 16.11.2018, the Tribunal dealt with the SCNs, which I have set out. The subsequent Order dated 20.11.2019, covers the period from April, 2015 to March, 2016. The Tribunal referred to the decision of the larger Bench in Standard Chartered Bank (supra). The said Judgment was found to be distinguishable.

#38. There is no discussion, it was found, or counter response that Standard Chartered Bank (supra) is not applicable. The question of interchange fee was not involved in Standard Chartered Bank (supra). The Tribunal agreed with the contention of the Respondent that it was not the submission of the assessee in Standard Chartered Bank (supra) that interchange fee was not consideration for service and the Tribunal and, therefore, did not have any occasion to examine, whether or not, the activity of issuing bank was service and covered by the taxing entry for credit card services. The Tribunal went on to, on the other hand, derive support from the Judgment in ABM Amro (supra) after adverting to paragraphs- 6 to 8, finding that the issue has been conclusively decided by the Tribunal in ABM Amro (supra) against the Revenue. The said Order was followed and the Order of the Commissioner was set aside. THE CONTENTIONS OF THE PARTIES

#39. Shri Balbir Singh, learned Solicitor General, would, after adverting to the salient features of the credit card transaction, contend that the respondent, as issuing bank, is liable to pay tax on the interchange fee. He drew our attention to the definition as contained in Section 65(33a) of the Act. He emphasised that the definition clause devises the employment of the word ‘includes’. He also took us to the Orders passed by the Tribunal in Standard Chartered Bank (supra) and ABN Ambro (supra). After the unravelling of the different dimensions of a credit card transaction made exigible to service tax expressly, he would contend that there was no scope for the contention of the respondent that there was no service rendered by it. Both for the period prior to 01.07.2012 and for the period thereafter, it was crystal clear that the respondent was rendering and continue to render service within the meaning of the Act and it is impossible to contend that the interchange fee is not liable to be taxed in the hands of the respondent. The interchange fee is the consideration that accrues to the issuing bank for verification, facilitation and extending the purchase value in line with the contractual agreement, the issuing bank has with the Card Association and also for taking the A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 473 risk of collection from the card holder. Interchange fee is, according to the appellant, consideration received as a result of contractual agreements with the Card Association to facilitate purchase of goods or services. The contention of the respondent that the activity is to be treated as a transaction in money, is disputed. The issuing bank is debited the purchase amount less interchange fee. The interchange fee is the service charge for allowing the transaction. The debited amount is a transaction in money. The service charge is demanded only on the interchange fee and not on the purchase amount. The Order of the Tribunal in ABN Ambro Bank (supra), cannot be relied upon being per incurium, as the same was rendered without appreciating the inclusive definition of ‘credit card service’ under Section 65(33a) read with Section 65(105)(zzzw) and Section 66B(44) of the Act.

#40. The complaint of the respondent that there is double taxation, is disputed. Reliance is placed on the Judgment of this Court in Association of Leasing & Financial Service Companies v. Union of India and others4, to contend that the service tax is the value added tax and service tax is imposed every time service is rendered to the customer/ client. The fallacy in the argument of the respondent that interchange fee is part of MDR, which has already suffered tax, is that, interchange fee is paid prior to the receipt of MDR. In other words, the deduction of MDR is done at the time of settling the money to the merchant establishment. This happens only after receiving the amount from the issuing bank, which is net of interchange fee. The interchange fee is the consideration given to the issuing bank for validating the e-transaction, whereas MDR is the consideration for the acquiring bank for settling the merchant establishment. MDR is fixed as the percentage of sale cost or service cost, whereas interchange fee is fixed by the Card Association, taking into account other aspects the cost of moving money, the time value of money in terms of current interest rates and the relative risks involved, etc.. They are two independent transactions. There are also two separate services forming part of credit card service. No service tax has been paid by the respondent on the amount received as interchange service towards rendering taxable service. The fact of payment of service tax by acquiring bank does not absolve the issuing bank from payment of tax on the consideration received by it. There is no double taxation. It is also contended that without prejudice to the said 4 (2011) 2 SCC 352 A B C D E F G H 474 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G contention the respondent has not produced evidence to establish payment of tax by the acquiring bank on the interchange fee. It is also contended that the extended period limitation has been rightly invoked in respect of the SCN dated 24.03.2013. There was no basis for the respondent to form a bonafide belief that their activities are not liable to service tax. There was no Order of the Tribunal which could have persuaded the respondent to think that it was not liable to pay tax. The definition in Section 65(33a) is unambiguous. No clarification was sought from the Department. Under the Regime of Self Assessment, the onus is only on the assessee to assess the tax liability honestly and as per law. It was only due to the verification of the accounts during audit, that the evasion of respondent, came to light. During the investigation also, it was contended by the respondent that the service tax had been discharged by the acquiring bank but they did not submit any proof. The present was, therefore, a case of fraud, wilful misstatement and suppression.

#41. The respondent, on the other hand, contended that in view of there being no appeal against the Order of the Tribunal in ABN Ambro Bank (supra), there could be no pick and choose and the present Appeals are not maintainable. It is further contended that the Appeals are also not maintainable for the reason that the Commissioner had deviated from the Show Cause Notices and arrived at findings on matters which were contrary to the case set up in the Show Cause Notice. It goes to two aspects. In the Show Cause Notice, it is stated, as already noticed, that even if the acquiring bank has paid tax, that would not absolve the respondent from its liability to pay tax. In other words, Show Cause Notice is based on acceptance of payment of service tax on the entire MDR, which includes the interchange fee, but in the impugned Order, the finding is that the respondent has not proved such payment. Secondly, it is contended that whereas in the Show Cause Notice, the case of the Department is that the respondent, as issuing bank, is providing service to the acquiring bank, in the impugned Order, what is found is, that the interchange fee is by way of service to the card network. Reliance is placed on Judgment of this Court in this regard in Commissioner of Central Excise, Nagpur v. Ballarpur Industries Ltd.5. The nature of the credit card transaction is highlighted. It is pointed out that the acquiring banks incur expenditure on installing swiping machines at the different merchant establishments. They are also responsible for ensuring payment H 5 (2007) 8 SCC 89 / [2007] 215 ELT 489 (SC) COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 475 to the service recipient within two days of transaction (T+2) as per the mandate of the Reserve Bank of India. Regarding the role of the issuing bank, it is stated that when the credit card is swiped by the card holder, on approval of the transaction, the entire chain of activities, is triggered. In the Table given, which consists of a transaction worth Rs.100/-, the card network debits the account of the respondent to the extent of Rs.98/ -. This amount is remitted to the acquiring bank. Rs.2/- remains to the credit of the issuing bank and this sum is called interchange fee. This is the income of the issuing bank. The acquiring bank receives Rs.98/-. It remits Rs.94.30 to the merchant establishment. The acquiring bank retains its service consideration of Rs.3/-. At the rate of 14 per cent, 70 paise is payable as service tax on the total MDR of Rs.5/-. It is the case of the respondent that when the acquiring bank has paid the said amount of service tax, the respondent cannot be called upon to again pay tax. Millions of transactions are processed every day. There is minimum human intervention as it is technology, which facilitates it. The same bank can function as issuing bank and acquiring bank. For all transactions, where Citi Bank has functioned as acquiring bank, it has retained Rs.3/ - from the merchant establishment as its fee but it has remitted 70 paise to Service tax authority. The service tax is collected from the merchant establishment and remitted to the Department.

#42. Under Section 67(1) of the Act, the respondent contends, the gross amount, which is charged by the service provider, will be Rs.5/-. In the present case, the expression, ‘service provider’ will include both the issuing bank and the acquiring bank. The gross amount will be Rs.5/ -, which includes Rs.2/- payable to the issuing bank and Rs.3/-, which is payable to the acquiring bank. Reliance is placed on Circular No. 51/13/ 2002 dated 07.01.2003 and Instruction bearing F.No. 150/1/94-CX4 dated 02.05.1996 issued by CBEC. Reliance is also placed on Department letter F. No. 341/18/2004-TRU(Pt.) dated 17.12.2004. It is submitted, on the basis of the analogy drawn, that the interchange fee cannot be taxed once again, as, under Section 65(33a)(iii), the service has been provided by both the issuing bank and the acquiring bank and charged accordingly. For the period after 01.07.2012, the transition to the Negative List did not mean that the credit card services could be split up into individual components and taxed again. The credit card services continue to be the taxable service. Section 67(1)(i) continued to levy service tax on the gross levy, i.e., the MDR. There is no averment in the Show Cause Notice, calling upon Citi Bank to submit proof that the acquiring A B C D E F G H 476 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G bank had paid the applicable service tax. The finding that the respondent has not proved the payment by the acquiring bank of the service tax on the amount, including the interchange fee, was without any opportunity. The finding is impugned as being absurd, as there is no mechanism for the acquiring bank to pay part service tax on only Rs.3/-. It is alleged to be contrary to Section 65(33a)(iii) and the Rules made thereunder. The Indian Bank Association, in which there are Nationalised Banks as well, have represented about the practice of paying tax by the acquiring bank on the gross amount of MDR. It is further contended that the absurdity of the suggestion of the Department, can be illustrated with an example where a Bank is both the issuing bank and the acquiring bank. It earns a gross MDR of Rs.5/-. It pays service tax on Rs.5/-. If the bank is again asked to pay separately on Rs.2/-, there would clearly be double taxation. The Department could have easily cross-checked by way of a sample check. Service tax is a passthrough levy. In other words, it can be used as an input tax credit for payment of output tax by the recipient. The credit card service is an input service as far as merchant establishments are concerned. If the service tax on interchange fee is demanded once again, there is no mechanism to take the service tax credit, even though, it has to be treated as a service provided by the issuing bank. No specific invoice is issued by the issuing bank either on the acquiring bank or on the merchant establishment, since the issuing bank does not know the identity of the merchant establishment or the acquiring bank. Neither the Act nor the Rules contemplate multiple payments. Service tax is payable only once on the gross service consideration. It is contended that the extended period of limitation for the period 2007-2015 could not have been invoked. The issue is interpretational. There was no suppression when facts are known to both sides. Reliance is placed on Ballarpur Industries Ltd. (supra), and Larsen & Toubro Ltd. v. Commissioner of Central Excise, Pune II6. ANALYSIS THE NATURE OF THE CREDIT CARD TRANSACTION

#43. In the Counter Affidavit, filed on behalf of the respondent in Civil Appeal No. 8228 of 2019, the stand of the respondent in regard to the nature of the transaction appears to be as follows: H 6 (2007) 9 SCC 617 2007 / [211] ELT 513 [SC] COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 477 “The manner in which a credit card purchase (transaction) occurs is diagrammatically described below: A All above transactions are powered by a technological platform and take place in a matter of seconds.

#9. The manner of settlement of credit card purchase transactions, i.e., money flow and service tax charged, is as follows: B C D E F G H 478 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H

#10. The above manner of settlement is diagrammatically depicted below:

#11. In terms of the above diagram, the Appellant has sought to collect tax on interchange fees of Rs. 2 again in the hands of the Issuing Bank which has already been discharged in the hands of the Acquiring Bank.

#12. xxx

#13. xxx

#14. Credit Card system: The credit card system was introduced to facilitate transactions between Merchant Establishments and Credit Card Holders. The system provided Card Holders with a convenient means to purchase goods and services without having to carry cash/ issue a cheque or have another form of credit, and enabled Merchant Establishments to reach 10 out to a larger customer base, with assured payment for goods or services and protection from fraud. In modern credit card transactions, following five parties are involved, namely: i. Issuing Bank - The Issuing Bank issues credit cards and therefore, effectively lends monies to its Card Holders. The contractual relationship between an Issuing Bank and its Card Holders is spelt out in the cardholder agreement / COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 479 ii. iii. terms & conditions. Service fees recovered by the Issuing Bank from Card Holders for such service is charged to service tax. Credit Card Holders - The Card Holder is the customer to whom the Issuing Bank issues a credit card. The credit card evidences a potential line of credit established by the Issuing Bank using which the Card Holder may purchase goods or services at any Merchant Establishment. Acquiring Bank - The Acquiring Bank is a bank which recruits, screens, and accepts Merchant Establishments into a Card Network’s network. They provide Point of Sale (‘POS’) machines to Merchant Establishments which enable Merchant Establishments to validate and accept credit card payments. The Acquiring Bank processes credit card transactions for Merchant Establishments within the respective Card Network and also operates as per the respective Network’s Operating Regulations. Any service fees (typically Merchant Discount Fee/ MDF) from Merchant Establishment is fully charged to service tax. iv. Merchant Establishment - The Merchant sells goods or services to Card Holders (buyers). The Merchant has no contractual relationship with the Card Holder’s Issuing Bank. The Merchant is provided with POS machines by the Acquiring Bank to enable it to accept card payments, for a fee (Merchant Discount Fee / MDF) which is preagreed and deducted at the time of settlement of the transactions. For this, the Merchant operates a bank account with the Acquiring Bank for credit towards sales made to Card Holders. v. Card Network - Card Networks provide the infrastructure /gateway system for electronic (credit card) transactions to effectuate (for example, Visa or MasterCard). They process transactions between Acquiring Banks and Issuing Banks, allowing purchases to be made, authorized and settled. Card Networks function as an interface between the Acquiring Banks and Issuing Banks, operating like an exchange or clearing platform. Thus, they have the key role in settlement of a Credit Card transaction. The Card A B C D E F G H 480 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H Network prescribes Operating Rules and fixes the ‘Interchange Fees’ that Issuing Banks earn, besides managing interchange flow between banks. The Card Network in most cases is located outside India. The charges levied by Card Networks, whether to the Acquiring Bank or Issuing Bank therefore suffer service tax under reverse charge mechanism.

#15. In any credit card transaction, involving each of the five parties stated above, there arises the following distinct contractual (service) relationships, between: (i) (ii) (iii) (iv) the Issuing Bank and the Card Holder, the Acquiring Bank and the Merchant Establishment, the Card Network and the Issuing Bank, the Card Network and the Acquiring Bank.

#16. In each of these contractual relationships described above, services are provided by the former to the latter and service tax is charged on the consideration for the respective services, none of which is contested by the Petitioner: (i) (ii) (iii) (iv) service provided by the Issuing Bank to the Card Holder is charged to service tax , service provided by the Acquiring Bank to the Merchant Establishment is charged to service tax, services provided by the Card Network to the Acquiring Bank is charged to service tax, and services provided by the Card Network to the Issuing Bank is charged to tax.

#17. The payment by Merchant Establishments to the Acquiring Bank (point (ii) above), known as Merchant Discount Fee includes a portion (known as Interchange Fees) that is shared by the Acquiring Bank with the Issuing Bank. It is the case of the Appellant -Department that the Issuing Bank receives Interchange Fees for services rendered to the Card Network, which has not suffered tax.” COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 481

#44. In the reply of respondent to SCN 97/15, it is, inter alia, stated: A You may notice that in the reply to the Show Cause Notice No. 97 dated 11.08.2015, which relates to the period April, 2014 to March, 2015, after Section 66B of the Act came into force. “1.2 The Noticee provides various financial services including the Credit Card Services. In these credit card transactions, the Noticee issuing credit cards to customers is known as ‘Issuing Bank’. Transactions involving purchase of goods and services are undertaken by such credit card holders by using such cards at various Merchant Establishments. The process flow of the said transaction is explained below: (i) (ii) (iii) The credit card is required to be swiped on electronic equipment’s known as Point-of-Sale terminals in order to charge the said card holder for purchase of goods and services from the Merchant Establishment. The said terminals are provided to the Merchant Establishments by the “Acquiring Bank” which enables validation and acceptance of payment by credit card. The Card Associations (‘the Associations’) such as VISA, MasterCard, etc. facilitate validation and settlement of transactions by providing a settlement platform to the Issuing Banks (i.e. the Noticee) and Acquiring Banks. The moment a card holder swipes the card at a Merchant Establishment, the online information is transmitted to the Issuing Bank (i.e. the Noticee) with the help of the Associations. The information regarding authenticity of the card holder is then sent back to the Merchant Establishment by the Association. The Association has an arrangement with the Issuing Bank (i.e. the Noticee) and the Acquiring Bank separately. A copy of the Client Services and Trademark License Agreement between the Noticee and the Associations is attached hereio and marked as Exhibit B. (iv) The Acquiring Bank makes payment to the Merchant Establishment in respect of the goods and services purchased by the customer after deducting a fee known as the ‘Merchant Discount’. The ‘Merchant Discount’ is the B C D E F G H 482 SUPREME COURT REPORTS [2021] 13 S.C.R. gross amount of consideration received towards the activities undertaken by the Issuing Bank and the Acquiring Bank. (v) Subsequently, the Association debits the pre-funded account of the Issuing Bank (i.e. the Noticee) on a net settlement basis (i.e. the Interchange Fee which is the share of the Issuing Bank is retained by the Issuing Bank). (vi) The Issuing Bank, the Acquiring Bank and the Associations each play their own role to ensure that a transaction can be undertaken between the credit card holder and the Merchant Establishment. (vii) The Issuing Bank subsequently collects the payment from the card holder. The Issuing Bank and Acquiring Bank further make the payment to the Associations and discharge Service tax under reverse charge mechanism on the same. Proof of payment of Service tax by the Noticee under the reverse charge mechanism is attached hereto and marked as Exhibit C. (viii) The Merchant Discount which is the gross amount received from the Merchant Establishment is subjected to Service tax as per Section 65B (44) of the Finance Act, 1994 (‘the Act’), in the hands of the Acquiring Bank.” THE PERIOD PRIOR TO 01.07.2012; SECTION 66(33a) DECODED

#45. Section 65(33a) was inserted by Finance Act, 2006 w.e.f. 01.05.2006. As already noticed, credit card services made its first appearance as part of banking and financial services under Section 65(10). Thereafter, it became part of Section 65(12), when it became part of the definition of the words “banking and other financial services” and it is finally, w.e.f. 01.05.2006, that Section 65(33a) made its debut. Section 65(33a) uses the word “includes any service provided under clauses (i) to (vii)”. I must not be oblivious to the fact that quite apart from credit card, debit card and other payment card service, are also within the scope of Section 65(33a). It is apparent that Section 65(33a)(i) deals with the service provided by a banking company, financial institution, including non-banking financial company, or any other person or other A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 483 persons and which entities are described as issuing bank, issuing such card to a card holder. Apparently, this is the provision, which is apposite to capture the charge of service tax on the issuing bank for the service it renders to the card holder. In fact, there is no dispute that in regard to the service rendered to the respondent, in terms of the contract it has entered into, the respondent has been exigible and liable to pay service tax.

#46. Now, I move on to clause (iii) of Section 65(33a), which is the pivotal provision. It contemplates any service provided by any person including issuing bank and an acquiring bank to any other person, in relation to the settlement of any amount transacted through such card. The Explanation to the said clause provides that, for the purpose of the sub-clause, acquiring bank has been defined as meaning any banking company, financial institution, including non-banking financial company or any other person, who makes the payment to any person who accepts such card.

#47. Let us pause for a moment and examine the scope of Clause (iii) of Section 65(33a) with the aid of the Explanation. The said provision embraces within its scope any service provided by any person. Any person would include expressly an issuing bank and an acquiring bank. The service may be rendered to any other person. The context is, however, the service rendered must be in relation to settlement of any amount transacted through such card. I am in this case, called upon to consider the case of a credit card. I have already noticed the salient features of a credit card transaction. I have gleaned the five players in the whole transaction. The issuing bank issues the card to the card holder and the recipient becomes the card holder. There is, indeed, privity of contract between them. Other three players are the acquiring bank, the card association, the merchant establishment.

#48. When a court examines a law, the court will not start with a presumption that the Legislature is not aware of ground realities and the complexities of transactions. The Legislature, on the other hand, I presume, knows how complex economic transactions are playing out, in fact, on the ground. Proceeding on the basis that Legislature has, indeed, divined what a credit card transaction entails, and who the players are, the different limbs of Section 65(33a), would assume meaning. A B C D E F G

#49. In the Explanation to Section 65(33a)(iii), in the context of the definition of the word “acquiring bank” for the purpose of clause (iii) of H 484 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H Section 65(33a), the acquiring bank is to be understood as the enumerated entities or any other person, who makes the payment to any person, who accepts such card. It is clear that in consonance with the very case of the respondent, that the expression “any person who accepts such card”, would be the merchant.

#50. Analysing Clause (iii) further, I notice that the Legislature has included both issuing bank and an acquiring bank. In other words, the word used in between issuing bank and an acquiring bank is not “or”. In other words, Section 65(33a) contemplates service provided by any person including an issuing bank and an acquiring bank. It is service to any other person.

#51. This means the service cannot be one rendered by an issuing bank to an acquiring bank. It must be service rendered by an issuing bank and an acquiring bank to any other person in relation to settlement of any amount transacted through such card. IS THERE ANY SERVICE PROVIDED BY THE RESPONDENT AS ISSUING BANK IN A CREDIT CARD TRANSACTION?

#52. I have examined the features of a credit card transaction. Certain facts are not in dispute. When the card holder goes to a merchant and purchases goods and services utilising the credit card, it in its train sets into motion, on the electronic platform, the following events: The transaction data from the diagram produced by the respondent which I have adverted to is transmitted instantaneously from the merchant through the appliance installed in the shop of the merchant by the acquiring bank. It goes through the acquiring bank and the card network and it reaches issuing bank. The entitlement of the card holder being found, the issuing bank approves the purchase after process check and it goes back through the card network to the acquiring bank and from there it is forwarded to the merchant establishment. The transaction based on the credit card goes through. Lastly, the transaction receipt is signed. It is not disputed that the issuing bank earns Rs.2/- in the illustrated transaction of Rs.100/-. It is again clear that this amount does not enter the measure of service tax, which the issuing bank pays on the service rendered by the bank to the card holder. There is no such case. It is not in dispute that both the issuing bank and an acquiring bank have entered into contracts with the card association. Equally, there is COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 485 privity of contract between the issuing bank and the card holder and there is also privity of contract between the acquiring bank and the merchant establishment.

#53. It is the very case of the respondent, in the example of transaction of Rs.100/-, that card association debits the account of the respondent to the amount of Rs.98/-. This amount of Rs.98/- is remitted to the acquiring bank. Rs.2/- remains ‘undebited’ in the account of the issuing bank and is, undoubtedly, the interchange fee. The acquiring bank, which receives Rs.98/-, remits Rs.94.30 allegedly to the merchant establishment. The acquiring bank retains Rs.3/-, which is the consideration for ‘its’ service. The respondent, as issuing bank, retains Rs.2/-. The reason why the merchant establishment receives Rs.94.30 and not Rs.95/- that is, Rs.5/-, consisting of the value of the service rendered by acquiring bank and Rs.2/- for the interchange fee earned by the respondent as issuing bank, is that allegedly, 70 paisa is purportedly paid as service tax on the gross consideration of Rs.5. It is clear that under the Explanation to Section 65(33a)(iii) of the Act, the acquiring bank is treated as the bank which makes the payment to the person who accepts such card, which I have already found to be the merchant establishment. The Legislature has contemplated that apart from an acquiring bank, any other person including an issuing bank, may render service in relation to the settlement of the amount transacted through such credit card.

#54. It is clear that interchange fee is earned by the respondent as issuing bank. It may be true that the respondent may also be engaged in the credit card transaction both in its capacity as issuing bank and an acquiring bank. In such an event, the aggregate sum earned for the service rendered in its capacity as issuing bank and its capacity as acquiring bank, would become the measure of tax or, in other words, value of the taxable service but legally they are for separate services as the nature of service rendered by the issuing bank is different from the service rendered by the acquiring bank. The fee is also different. Undoubtedly, it would be dependant on the terms of the contracts in question.

#55. In a scenario, however, where the issuing bank and the acquiring bank are different, as is the case in the present case, it would be a case where both the issuing bank and the acquiring bank are rendering separate services as part of the credit card transaction. Indisputably, the interchange A B C D E F G H 486 SUPREME COURT REPORTS [2021] 13 S.C.R. fee is no gift. Such a fee is not the subject matter of the service tax, falling under the transaction between the issuing bank and the card holder relatable to Clause (i) of Section 65(33a). The nature of the entire transaction, having been laid bare from the moment the card gets swiped in a transaction, till the amount is paid to the merchant establishment, there is, indeed, service performed by the issuing bank in relation to the settlement of the amount transacted through the card. As already noticed, the issuing bank, as part of its agreement with the card association and the acquiring bank, which is also under agreement with the card association, is engaged in the unique activity of being on the electronic platform hosted by the card association, which, admittedly, fixes the interchange fee and the amount to be earned by the issuing bank and acquiring bank and, under the auspices of which, transaction data, in millions, is processed by the issuing bank and it is only with the approval of the issuing bank that the merchant bank permits the purchase using the card. This is on the clear understanding that the amount will be paid by appropriate debit and credit in the accounts maintained, both by the issuing bank and acquiring bank. Rs.2/-, in the example given, is, however, retained by the issuing bank and it is Rs.98/- which alone gets credited in the account of the acquiring bank. The actual payment is finally received by the merchant establishment on the agreed date on settling the account by the acquiring bank paying the amount, after deducting Rs. 5/- as amount of merchant discount. This amount of merchant discount is made up of Rs.2/- earned by the issuing bank.

#56. It is inconceivable that without the role played by the issuing bank, which tantamounts to activity and, therefore, service, the very credit card transaction, would become possible.

#57. It is also clear that credit card system is fundamentally based on the issuing bank, undertaking the risk. Rs.98/-, in a transaction of Rs.100/-, gets debited from the account, which the respondent bank, as issuing bank, maintained. It is the funds of the issuing bank, which is utilised, in other words, to effect the payment. It is, therefore, clear that there is service rendered by the bank, which is in connection with Clause (iii) of Section 65(33a). It is another matter that under the agreement between the issuing bank and the cardholder, the cardholder would be paying the sum of Rs.100/- to the issuing bank, within the stipulated period and, if he does not pay, he would incur the liability to pay interest, as stipulated, under the terms of the contract. The fact remains that A B C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 487 there is the risk undertaken, in the first instance, of making available the funds to satisfy and settle the amount transacted through the card to the merchant establishment. SECTIONS 67 TO 70; WHO IS LIABLE TO PAY SERVICE TAX, OBTAINED REGULATION AND FILE RETURN?

#58. As far as the value of the taxable service is concerned, this is a matter which is governed by Section 67 of the Act. Since Section 66 imposed service tax on the value of the taxable service, Section 67 provides for how the value of the taxable service is to be determined. Section 67(1)(i) contemplates that in case where the provision of service is for a consideration in money, then the value will be the gross amount charged by the service provider for such service provided or to be provided by him. Section 67(1)(ii) deals with a situation where the provision of service is for consideration not wholly or partly consisting in money. Section 67(1)(iii) deals with a case where the consideration is not ascertainable. In such a case, the amount is to be determined in the manner prescribed by the Rules. Sub-section (3) declares that any amount received towards the taxable service before, during the service, and the provision of service shall be included in the gross amount. Sub-section (4) proceeds to declare that subject to provisions of sub-section (1), (2) and (3) the value shall be determined as may be prescribed. The Explanation Clause (C) to Section 67, as amended by the Finance Act, 2008, declares that gross amount charged includes, payment by cheque, credit card, deduction from account and any form of payment by issue of credit note or debit note or book adjustment, inter alia.

#59. As far as payment of service tax is concerned which is governed by Section 68 of the Act, the liability to pay service tax is cast on every person providing the taxable service to any person. Sub-section (2) contemplates a departure from the mandate of Section 68(1) in that, in regard to taxable services as may be notified by the Central Government in the gazette, the service tax is to be paid by such person in the manner prescribed at the rate specified in Section 66 and the provisions of the chapter (which is in fact “persons responsible for payment of service tax”) applies as if he is a person liable to pay service tax relating to such service. Section 68 must be read with Section 69, for it provides for the liability of a person to get registered. The liability is cast on the person liable to pay service tax under Chapter V. There is no A B C D E F G H 488 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H case for the respondent that the case is governed by Section 68(2) for which the taxable service must be notified thereunder. That the person liable to pay tax under Section 68 must get himself/itself registered in the manner prescribed is made clear from Rule 4 of the Rules as it clearly provides that every person liable to pay service tax shall apply to get himself/itself registered and the entire provisions of rules is premised upon the liability to get registered being on the person made liable to pay service tax. No doubt, endorsement of an existing registration may be possible. Section 70 also cast the liability on the person liable to pay service tax, to assess the tax due and furnish return.

#60. The charge of service tax under section 66 was on the value of taxable services as enumerated in Section 65(105). The measure of the tax is found located in Section 67. The person liable to pay the tax is governed by Section 68 and such person who is liable to pay service tax under Section 68 is also liable to get himself registered under Section 69 read with the Rules and such person that is the person liable to pay service tax must also assess the tax and file Return under Section 70, as prescribed in the Rules.

#61. I have already explained the scope of Sections 67 to 70. The contention of the Respondent, however, in regard to Section 67(1)(i), in its written submission before this Court, is that the expression “service provider” will include both issuing bank and the acquiring bank and the gross amount will be Rs. 5/-, which includes the consideration of Rs.2/- payable to the issuing bank and Rs.3/- which is payable to the acquiring bank. This contention is qualitatively distinct from the case, which has been set up before the Commissioner and the Tribunal, in the sense that the case of the Respondent appears to have been that under Section 67, the service provider was to pay tax on the gross amount, for which it provided the service and the attempt has been to contend that no service, as such, was being provided by the issuing bank. I take it that this is, in effect, an implied admission that the issuing bank does provide service in the matter of settling of the amount transacted through the credit card, for which it earns Rs.2/- as interchange fees. Now, that it is contended that the expression “service provider”, in Section 67(1)(i), will include, the issuing bank and the acquiring bank, I would feel more reassured in our finding that, all throughout, the respondent was, indeed, as issuing bank, liable to pay service tax on the service contemplated under Section 65(33a)(iii). Section 67(1)(i), as already decoded by me, after its substitution by the Finance Act, 2006, provides that the value of taxable COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 489 service will be the gross amount charged by the service provider for such service provided or to be provided by him. The contention that the gross amount would be Rs.5/-, which is made of Rs.3/- for the service provided by the acquiring bank and Rs.2/- payable to the issuing bank (interchange fee), overlooks the fact that the gross amount is predicated with reference to the service actually provided or to be provided by the particular service provider. Proceeding on the basis that the words “service provider”, includes issuing bank and the acquiring bank, it is, therefore, clear that the gross amount to be charged by both the service providers, viz., the issuing bank and the acquiring bank, must be premised on the separate service provided or to be provided by them. The words “gross amount” cannot be the aggregate of the value of the services provided by the different service holders. The service, provided by the acquiring bank, is different from the service provided by the issuing bank. This is far too clear to require any further elucidation. The value of the service, which constitutes the measure of the tax, is dependant on the nature of the service. Apparently, the measure of the tax by way of value, has been fixed by the Card Association, with which, both the issuing bank and acquiring bank, have entered into separate agreements. The activity of the acquiring bank, and, therefore, the services rendered by the acquiring bank is distinct from the activity of the respondent bank and, therefore, the service is different and distinct. In law, therefore, there could not be a gross amount by adding the value of two distinct services by two different service providers. Expression “gross amount” is to be understood with reference to the service provided or to be provided by a particular service provider and the provision does not appear to me to embrace within its scope, adding of what would be different gross amounts for arriving at the gross amount of the service provided by a particular service provider. In this context, I may notice that the words “gross amount charged” have been defined as, including payment in the many forms, which are mentioned therein, which includes debit notes, book adjustment and any amount credited or debited in any account. The interchange fee, in a transaction of Rs.100/-, is the amount of Rs.2/-, which remains to the credit of the respondent-issuing bank, when it suffers the debit of Rs.98/- only, in a transaction of Rs.100/-. In other words, the Respondent got paid Rs.2/-. It is only Rs.98/-, which makes its way into the account of the acquiring bank. The merchant establishment, no doubt, is paid Rs.94.30, in the example given by the Respondent, out of Rs.98/- received by the acquiring bank. A B C D E F G H 490 A SUPREME COURT REPORTS [2021] 13 S.C.R.

#62. From the above, it appears to be clear that the Respondent, as issuing bank, provides service within the meaning of Section 65(33a)(iii). It is towards the same that the Respondent is paid Rs.2/- as interchange fee. Interchange fee, therefore, is exigible to service tax.

#63. Admittedly, the Respondent has not paid any service tax on B the said amount.

#64. In the context of Section 67 of the Act, I queried Shri Arvind Datar, learned Senior Counsel as to what would happen if a Notification is issued under Section 93 of the Act, exempting the acquiring bank from the levy of service tax payable by acquiring bank under Section 65(33a)(iii). Section 93 provides power to exempt from service tax on taxable services of any specified description, the whole or any part of the service tax leviable thereon. What would be the position, if the Central Government exempted the acquiring bank, specifically, from the service tax payable by it for the service within the meaning of Section 65(33)(iii)? Would the amount of interchange fee earned by the issuing bank, then be exempt and can the issuing bank seek shelter under such a Notification? This brings into sharper focus, the fact that the amount payable by the acquiring bank as service provider, is different from the amount payable by the issuing bank, the nature of the services being different and the measure of tax also different. IS INTERCHANGE FEE INTEREST AND THEREFORE NOT CONSIDERATION FOR SERVICE?

#65. Shri Arvind P. Datar, learned Senior Counsel, appearing on behalf of the Respondent, contended that interchange fee is actually akin to interest and it is not to be treated as a consideration for any service. He drew inspiration from Judgment of the U.S. Tax Court in Capital One Financial Corporation and Subsidiaries v. Commissioner, 133 TC No.8 (September 21, 2009). The decision was rendered under the law relating to income-tax. The statutory framework contained in the Act is different from the law which was considered by the Court. It is inapposite to lift the principle from the leaves of foreign Judgment and apply it out of context.

#66. The respondent is a Banking Institution. Undoubtedly, it falls to be regulated under the Banking Regulation Act. It is, in fact, a scheduled bank. Interestingly, the Interest Tax Act, 1978, provides for a charge in Section 4 on interest earned by a credit institution, which includes C D E F G H COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 491 the respondent-bank. Undoubtedly, under Section 18, the tax paid on interest under the Interest Tax Act can be deducted under the Income- Tax Act. If the interchange fee, has been regarded as interest, then, undoubtedly, it would have been brought to tax under the Interest Tax Act. The respondent has no case that tax has been paid on the interchange fee treating it as interest.

#67. While on the question of interest, I may notice the discussion of this Court on the concept of interest in the Judgment in Ferro Alloys Corpn. Ltd. v. A.P. State Electricity Board and another7: “129. Strictly speaking, the word “interest” would apply only to two cases where there is a relationship of debtor and creditor. A lender of money who allows the borrower to use certain funds deprives himself of the use of those funds. He does so because he charges interest which may be described as a kind of rent for the use of the funds. For example, a bank or a lender lending out money on payment of interest. In this case, as already noted, there is no relationship of debtor and creditor.

#130. We may now refer to Halsbury, 4th Edn., Vol. 32, para 108: “108. When interest is payable at common law.— At common law interest is payable (1) where there is an express agreement to pay interest; (2) where an agreement to pay interest can be implied from the course of dealing between the parties or from the nature of the transaction or a custom or usage of the trade or profession concerned; (3) in certain cases by way of damages for breach of a contract (other than a contract merely to pay money) where the contract, if performed, would to the knowledge of the parties have entitled the plaintiff to receive interest. Except in the cases mentioned, debts do not carry interest at common law.” Consumption security deposit does not fall under any of the categories mentioned above. Para 109 says: “Equitable right to interest. — In equity interest may be recovered in certain cases where a particular relationship exists between the creditor and the debtor, such as mortgagor and 7 1993 Supp (4) SCC 136 A B C D E F G H 492 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H mortgagee, obligor and oblige on a bond, personal representative and beneficiary, principal and surety, vendor and purchaser, principal and agent, solicitor and client, trustee and beneficiary, or where the debtor is in a fiduciary position to the creditor. Interest is also allowed on pecuniary legacies not paid within a certain time, on the dissolution of a partnership, on the arrears of an annuity where there has been misconduct or improper delay in payment, or in the case of money obtained or retained by fraud. It may also be allowed where the defendant ought to have done something which would have entitled the plaintiff to interest at common law, or has wrongfully prevented the plaintiff from doing something which would have so entitled him.” This paragraph is also inapplicable to the present case.”

#68. The said view has been relied upon in judgment of this Court in State of Karnataka and others v. Karnataka Pawn Brokers Association and others8. In the said judgment, I may notice the following: “Issue (iii)

#29. To decide this issue we must first understand the concept of interest. It has been repeatedly held that interest is basically compensation for the use or retention of money. In Halsbury’s Laws of England, 4th Edn., Vol. 32, “interest” has been defined as follows: “127. Interest in general. —Interest is the return or compensation for the use or retention by one person of a sum of money belonging to or owed to another. Interest accrues from day to day even if payable only at intervals, and is, therefore, apportionable in respect of time between persons entitled in succession to the principal.”

#30. According to Law Lexicon, by P. Ramanathan Aiyar, 3rd Edn. (2005) (p. 2402) Vol. 2: “ ”Interest” means the time value of the funds or money involved, which, unless otherwise agreed, is calculated at the rate and on the basis customarily accepted by the banking community for the funds of money involved.” 8 (2018) 6 SCC 363 COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 493

#31. In Words and Phrases Permanent Edition, Vol. 22 p. 148, “interest” means: A “(i) “Interest” is compensation for loss of use of principal. Jersey City v. Zink [Jersey City v. Zink, 44 A 2d 825 : 133 NJ Law 437 (1945)] , A 2d p. 828". (ii) “Interest” means compensation for the use or forbearance of money. Commr. of Internal Revenue v. Meyer [Commr. of Internal Revenue v. Meyer, 139 F 2d 256 (6th Cir 1943)], F 2d at p. 259.”

#69. It is inconceivable that there is a creditor and debtor relationship between the respondent as issuing bank and the Card Association or the acquiring bank or even the merchant establishment. The respondent cannot be described as a lender of money and the other three players, as just hereinbefore described, as borrowers. In the context of the relationship of the respondent as issuing bank, interchange fee cannot be described as compensation fixed by the parties for use or forbearance of the borrowed money. In fact, the concept of borrowed money, is predicated on the existence of creditor-debtor relationship which is absent. Interest, in the context of the definition, in Law Lexicon by Ramanathan Iyer, places a time value on the funds or money involved and further, it would also involve the rate, at which, the interest is calculated. Again, this definition is apposite in the context of the relationship between a lender and a borrower. The nature of the service, I have unravelled, performed by the issuing bank includes the act of approval of the credit card transactions. It is an integral and indispensable part of a credit card transactions. It was partly for this service that the interchange fee is earned by the respondent as issuing bank. There is no scope for an implied contract as the interchange fee is apparently paid in terms of the contract. Quite clearly, there is no scope for applying equity as the basis for the interchange fee as interchange fee is payable under the contract and towards service rendered by the respondent. I am, in the circumstances, of the view that the contention of the respondent is meritless. THE PERIOD AFTER 01.07.2012

#70. With the introduction of Section 66 B accompanied by the definition of service under Section 65B (44) and the legislature further providing for the negative list of services which stood excluded from the B C D E F G H 494 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E F G H levy of service tax in Section 66 D, the question would only be whether there is any service and whether it is excluded under Section 66 D. The relevant part of Section 65 B (44) to the dispute in question reads as follows: “(44) “service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include – (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale withing the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force.” The Explanation 2 originally read as follows; “Explanation 2.- For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged.” The same came to be substituted in 2015 by the following: - “Explanation 2.- For the purposes of this clause, the expression ‘transaction in money or actionable claim’ shall not include – (i) Any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.”

#71. I have already found in the context of Section 65(33a) that Legislature has recognised a wide spectrum of services which are provided by different players in relation to a credit card transactions, COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 495 inter alia. I have further found that the issuing bank does indeed perform services without which the credit card transactions become impossible. No doubt under the new dispensation the four elements in order to constitute service are (i) an activity, (ii) by the service provider, (iii) to a service recipient and (iv) there must be consideration. This is undoubtedly apart from any declared service. I am of the clear view that all the ingredients in this case stand satisfied in the settlement of the amount transacted under the credit card apart from the service which is performed by the issuing bank qua the card holder which constitutes a separate service. The issuing bank under agreement with the card association indulges in the activities which consists of being part of the system which begins with the approval of the transactions which immediately culminates in the sale of goods or services by the merchant establishment to the card holder without payment by him and further by taking the risk of maintaining the requisite funds by which ultimately the acquiring bank makes available the amount to the merchant establishment. WHETHER CREDIT CARD TRANSACTION A TRANSACTION IN MONEY?

#72. The only argument which is raised otherwise is that it is transaction in money and therefore it is excluded from the definition of the word service. In the decision rendered by the Delhi High Court 2013 (30) S.T.R. 347, in the context of transaction of chit, the Court, inter alia, held as follows: “In a mere transaction in money or actionable claim, no service is involved; there is just the payment and receipt of the money. A mere transaction in money represents the gross value of the transaction. But what is chargeable to service tax is not the transaction in money itself since it can by no means be considered as a service. A clue to a proper interpretation of the exclusionary part of the definition is embedded in Explanation2. This Explanation carves out an exception to the exclusionary part of the definition by providing that any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency A B C D E F G H 496 SUPREME COURT REPORTS [2021] 13 S.C.R. A B C D E or denomination to another form, currency or denomination for which a separate consideration is charged shall not be considered as a transaction in money.”

#73. The interchange fee is earned by the issuing bank as consideration for service which is provided by the issuing bank. The complex web of activities indulged in by the three main players namely the issuing bank, the card association and the acquiring bank culminates in the settling of the amount due to the merchant establishment which stood persuaded to make available goods and services initially on credit but on assurance that the credit card transaction will be taken to its logical culmination. It is clear that the active role which necessarily means the activity indulged in by the issuing bank is indispensable and at the heart of the transaction in the system under which though through machines available by the acquiring bank with the merchant establishment the Merchant gets paid. The issuing bank for each transaction must approve the transaction. The risk which is undertaken by the issuing bank which again makes available the funds and maintains the fund from time to time as per requirement and under the contractual obligations is part of the service performed by the issuing bank. What is sought to be taxed under the act is the interchange fee and not the amount which is made available. Therefore, I am of the view that the contention of the respondent that it constitutes merely transaction in money involves overlooking the service provided by the respondent as issuing bank. There is clearly activity in relation to the use of money within the Explanation. IMPACT OF NOT CHALLENGING ABN AMRO (SUPRA) F

#74. The contention of the appellant is that appellant not having challenged the aforesaid decision, it is precluded from challenging the Order of the Tribunal following the said Order.

#75. In this regard, I notice and consider the following case law G relied upon by the respondent.

#76. In Union of India and others v. Kaumudini Narayan Dalal and another9, noticing that the Revenue had accepted the Judgment of the High Court, it was found that it was not open to the Revenue except H 9 (2001) 10 SCC 231 COMMISSIONER OF GST AND CENTRAL EXCISE v. M/s CITI BANK N. A. [K. M. JOSEPH, J.] 497 the assessee in that case and challenge its correctness in the case of other assessees, without just cause. A

#77. In Commissioner of Central Excise v. Tata Engineering and Locomotives Co. Ltd.10, undoubtedly, in paragraph-9, the Court held as follows: “9. Apart from the question of interpretation of the notification, the appellant has not offered any explanation why the decision of the Tribunal dated 2-9-1998 in Bajaj Auto case in respect of an earlier year allowing the benefit of the 1986 notification in respect of the gauges manufactured and captively used in the factory of M/s Bajaj Auto, had not been challenged. We can, in the circumstances, conclude that the Tribunal’s interpretation was accepted by the Revenue and they are precluded from taking an inconsistent stand now. (See Union of India v. Kaumudini Narayan Dalal [(2001) 10 SCC 231 : (2001) 249 ITR 219] .)”

#78. The question involved in the said case, was whether the respondent assessees were entitled to the benefit of the Exemption Notification having regard to the terms of the Explanation contained in the Notification. This Court, proceeded to consider the case on merits and found that the goods in question were covered by the exemption Notification. It is thereafter that what has been stated in paragraph-9, was found to be reason to supplement the decision to uphold the impugned Order.

#79. In Birla Corpn. Ltd. v. Commissioner of Centra Excise11, the Court noted the submission of the appellant that in several decisions followed, the views of the Tribunal in two cases, referred to therein, and the law was fully settled. We notice the following paragraph: “5. In the instant case the same question arises for consideration and the facts are almost identical. We cannot permit the Revenue to take a different stand in this case. The earlier appeal involving identical issue was not pressed and was therefore, dismissed. The respondent having taken a conscious decision to accept the principles laid down in Pepsico India Holdings Ltd. [(2001) 130 ELT 193 : (2001) 42 RLT 800 (cegat)] cannot be permitted to