Order Date – 16 October 2024

Parties: Commissioner of GST and Central Excise Vs M/S City Bank N.A.

Facts –

• The Respondent, M/S City Bank N.A was demanded service tax on interchange fee on the ground that the acquiring bank should have paid service tax on the Merchant Discount Rate (MDR) minus the interchange fee, and the issuing bank should have paid service tax on the interchange fee.

Issue –

• Whether the respondent required to discharge service tax on interchange fee?

Order –

• The Hon'ble Apex Court observed that the onus to show that payment of service tax on the entire MDR was made by the acquiring bank will be on the issuing bank, that is, the respondent, M/s. Citibank N.A.
• Interestingly, the show cause notice proceeds on the basis that, regardless of the service tax paid by the acquiring bank on the full MDR, the issuing bank would be liable to pay service tax on the proportion of its share in the MDR, which is the interchange fee.
• The Court found that the entire amount of the service tax payable on the MDR has been paid to the Government and there is no loss of revenue. Hence appeals are disposed of, holding that service tax is not separately payable on the interchange fee, as service tax has been paid on the MDR.