Summary
The judges differed on separate service-tax liability for an issuing bank’s credit-card interchange fees. Joseph J considered the issuing bank a separate service provider but would permit proof that the acquiring bank had already paid the tax and reconsideration of extended limitation. Bhat J treated settlement as a unified service taxed on the full merchant discount and would dismiss the Revenue’s appeals without remand. Both rejected characterising the fee as interest or the service as merely a transaction in money. The disagreement resulted in reference to an appropriate Bench, not a final majority determination of the demands.
Issues
- Whether the issuing bank’s role attracted separate service tax on interchange fees or formed part of a unified settlement service taxed on the merchant discount.
- Whether payment by the acquiring bank and alleged wilful suppression required remand.
Provisions considered
- Sections 65(33a)(iii) and 65(105)(zzzw), Finance Act, 1994The judges differed on whether card settlement comprised independently taxable services or a unified service; both opinions must be distinguished. (¶¶ Joseph J., 45-62, Bhat J., 19-30, 38)
- Sections 67 and 68, Finance Act, 1994The disagreement concerned valuation and responsibility for payment, including whether the full merchant discount already covered interchange fees. (¶¶ Joseph J., 58-64, 92-100, Bhat J., 31-38)
Held
- Joseph J held that the issuing bank performed a distinct settlement-related service for interchange fees, taxable under the pre-July 2012 card-services provisions and under the later service-tax regime. He rejected treating the fee as interest or the activity as merely a transaction in money. These conclusions formed part of his separate opinion. (¶¶ Joseph J., 45-73, 109(I)-(VIII))
- Joseph J nevertheless considered a second recovery impermissible if the acquiring bank had already discharged tax on the same interchange fee. He proposed remand to permit proof of that payment and determination of wilful suppression for extended limitation; the demands would depend on those findings. (¶¶ Joseph J., 92-108, 109(IX)-(X), 110-112)
- Bhat J agreed that the issuing bank’s activity was a service and that interchange fees were neither interest nor consideration for a mere money transaction. He also agreed that failure to appeal the ABN Amro decision alone did not require dismissal. (¶¶ Bhat J., 27, 38(A)-(C))
- Bhat J regarded the issuing and acquiring banks’ settlement activities as a single unified service whose gross consideration was the merchant discount, including interchange fees. In his view, separately taxing the issuing bank’s retained component was unwarranted, and separate returns did not justify remand. (¶¶ Bhat J., 19-30, 31-38(D))
- Bhat J also rejected the wilful-suppression case in light of the notices, industry representations and unsettled legal position, and would dismiss the Revenue’s appeals. This differed from Joseph J’s proposed allowance and remand; neither proposed disposition constituted a final majority merits ruling. (¶¶ Bhat J., 38(D)-39, Joseph J., 111-112)
Result
Judges differed: Joseph J would allow the Revenue’s appeals and remand on specified issues; Bhat J would dismiss them. Matter referred to an appropriate Bench; no final majority disposal of the tax demands in these opinions.