Supreme Court Judges Differ On Applicability Of Service Tax On Interchange Fee: EY's Insight

EY Update

This tax alert summarises a recent ruling of the Division Bench of Supreme Court. The issue relates to applicability of service tax on interchange fee retained by the issuing bank in relation to a settlement of credit/ debit card transaction.

The first judge observed that the issuing bank and acquiring bank render separate services as part of a card transaction. Accordingly, assessee, as issuing bank, was liable to pay service tax on interchange fee.

The second judge observed that there is one unified service provided by acquiring bank to merchant establishment for which gross of consideration is merchant discount rate. This single MDR includes interchange fee. Therefore, the issuing bank's service is subsumed into the service of the acquiring bank.

Both the judges, concurred on the finding that once acquiring bank had discharged service tax liability, assessee (issuing bank) cannot be called upon to pay service tax again as it would result in double taxation.

In view of divergent opinion, the matter is placed before the Chief Justice of India for constituting an appropriate bench.

Click on the attachment to read the full report:

DISCLAIMER

This alert does not constitute legal advice and is for information purpose only. This report is authored by an external party. BloombergQuint does not vouch for the accuracy of its contents nor is responsible for them in any way. The views expressed in the report are that of the author entity and do not represent the views of BloombergQuint.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.