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Commissioner of GST and Central Excise vs. M/S Citibank N.A.

Not available · 2024 INSC 808Decided 16 Oct 2024
Not available
Justice Sanjiv Khanna · Justice Sanjay Kumar · Justice R. Mahadevan

Background

This case involved a dispute over service tax on credit card transactions between the bank that issues a credit card (the issuing bank, here Citibank) and the bank that processes payment for the merchant (the acquiring bank). The tax authorities argued that the "interchange fee" (the portion of the total transaction fee (Merchant Discount Rate, or MDR) that the acquiring bank pays to the issuing bank) should be separately taxed as a service by the issuing bank, in addition to the tax already paid by the acquiring bank on the full MDR. This dispute had earlier gone to a two-judge bench that gave differing opinions (Justices S. Ravindra Bhat and K.M. Joseph), leading to the matter being referred to a larger bench along with connected appeals.

Decision Breakdown

The Supreme Court agreed with the reasoning of Justice S. Ravindra Bhat's earlier opinion. It held that a credit card transaction is, in substance, one unified service provided to the cardholder and the merchant, even though it is technically split among the issuing bank, acquiring bank and payment network. Since the MDR, which already includes the interchange fee component, is taxed in full at the point it is charged by the acquiring bank, taxing the interchange fee separately and again would amount to double taxation of the same value. Since the full service tax on the MDR was undisputedly already paid to the government and there was no loss of revenue, the Court held that there was no additional service tax payable separately on the interchange fee.

Lesson Learnt

Tax law aims to tax the real economic substance of a transaction once, not to slice a single unified service into multiple taxable pieces merely because different entities are involved in different stages of a payment chain, especially where the tax due has already been fully collected and there is no loss to the exchequer.

Official source (sci.gov.in)View Judgment (PDF)

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