In Brief
Citibank received show-cause notices demanding service tax on interchange fees earned as an issuing bank in credit card transactions. The Central Commissioner and Revenue argued interchange fees were consideration for services under Section 65(33a)(iii) of the Finance Act, 1994. The Tribunal set aside the demand, relying on ABN Amro Bank decision. The Supreme Court allowed the Revenue's appeals in a split judgment. Justice Joseph held the issuing bank provides separate taxable service; interchange fees are not interest and remanded to determine suppression and proof of tax paid by acquiring banks. Justice Bhat, in dissent, held the issuing bank's role forms part of a unified settlement service by both banks; interchange fees should not be separately taxed to avoid double taxation on the aggregate MDR.
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