Service Tax on MDR and Interchange Fee: Clarifying the Taxability in Credit Card Transactions.
16 October 2024
Civil Appeals >> Civil & Consumer Law
The case discusses the payment of service tax on the Merchant Discount Rate (MDR) and the interchange fee between acquiring and issuing banks in credit card transactions. The Revenue argued that the acquiring bank should pay service tax on the MDR minus the interchange fee, and the issuing bank should pay tax on the interchange fee. However, the court upheld the judgment by S. Ravindra Bhat, J., concluding that service tax on MDR, which includes both the acquiring bank fee and the interchange fee, was correctly levied.
The judgment emphasized that there is one unified service provided to the consumer and merchant, and that the service tax paid on the full MDR was sufficient, without needing separate tax payments on the interchange fee. The court also noted that the Service Tax Department had access to all relevant data to determine the tax paid, and there was no loss of revenue. Ultimately, the court ruled that no separate service tax was required on the interchange fee, as the full MDR tax had already been paid.