2026-VIL-1501-CESTAT-MUM-ST
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SERVICE TAX CESTAT Cases

Service Tax liability on interchange fees earned by issuing banks in Credit card services transaction - Appellant is issuing bank earning interchange fees from credit card transactions - Appellant contended that interchange fee is not liable to service tax as no service is rendered to merchant establishment or acquiring bank in respect of such fee and essential ingredients of service provider recipient relationship and contractual nexus are absent - Department alleged that interchange fee is consideration for credit card services provided to cardholders and is liable to service tax under Section 65(33a) and 65(105)(zzzw) of Finance Act 1994 - Whether interchange fee earned by issuing bank constitutes taxable service under credit card services entry - HELD - The issue has been conclusively decided by the Tribunal in case of ABN Amro Bank wherein it was held that amount received by issuing bank does not qualify as credit card services - The definition of credit card services under Section 65(33a) clause three requires service to be in relation to settlement of any amount transacted through card. Admittedly the issuing bank is not engaged in settlement of amount as settlement is done by acquiring bank - Issuing bank is not the settlement agency and acts only as issuing bank verifying and facilitating transaction with cardholder. Acquiring bank is liable to pay service tax on entire Merchant Discount Rate. Where acquiring bank has discharged service tax liability on amount in question no service tax is payable by issuing bank. When service tax has already been paid by one party on transaction no double taxation can result from similar levy on another party - The Tribunal's decision in case of Citi Bank N.A. has been upheld by the Hon'ble Supreme Court on identical issue. Interchange fee amount does not fall within definition of taxable service under credit card services entry as issuing bank does not undertake settlement function. Demand for service tax on interchange fees is not sustainable - The impugned orders are set aside and the appeals are allowed
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