In Brief
Citibank, an issuing bank, was demanded service tax on interchange fees from acquiring banks in credit card transactions (2007–2015). Justice Joseph (majority) held that issuing banks provide distinct services under Section 65(33a)(iii) and must pay tax on interchange fees; remanded to determine if acquiring banks actually paid such tax and whether willful suppression occurred. Justice Bhat (dissent) held that the credit card settlement service is a single unified service provided jointly by acquiring and issuing banks, with interchange fees being an inseparable component subjected to tax once in the acquiring bank's hands—imposing separate tax on issuing banks constitutes prohibited double taxation. The appeals were disposed by remand on unresolved factual matters regarding whether the acquiring bank's tax payment covered the interchange component.
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