Unreported Decisions – ST – September 2018

By CA Vinay Jain & Mr. Sachin Mishra, Advocate

1. Whether the ‘Registrar Accreditation Agreement’ between National Institute Exchange of India (Appellants) and its registrars to register ‘.in’ domain names is an agreement for rendering ‘Franchise Services’ by the Appellants to its registrars?

Facts & Pleadings: National Institute Exchange of India (hereinafter referred to as the ‘Appellants’) has been entrusted with the responsibility of setting up the registry for ‘.in’ domain name, and for operating as registry for ‘.in’ domain name in India. The Appellants in turn have entered into agreements with certain registrars to register ‘.in’ domain names known as ‘accreditation agreements’. The Appellants are receiving certain amounts from their registrars as accreditation fees.

It is the case of the department that the Appellants were rendering franchise services to the accredited registrars which is taxable under Section 65(105)(zze) of the Act. The Appellants were collecting charges from the accredited registrars for every domain name registered by the said accredited registrar per year as registration charges, transfer charges, renewal charges etc. These charges were in fact consideration for the franchise services rendered by the Appellants to the registrars.

The Appellants have on the other hand contended that the Appellants and the appointed registrars are two independent entities, and cannot be referred to as franchisor and franchisee. Further, the sum as received by the Appellants from the registrars is a mandatory accreditation fee as per the policy framework of Government of India. This is no consideration received by the Appellants from the registrars for any services provided by the latter to the former.

Judgment: The Hon’ble CESTAT noted that a franchise is said to exist only when an entity (franchisor) grants a representational right to another entity (franchisee). The right means the entity (franchisee) must surrender his own identity, and in addition must step into the shoes of the franchisor.

The Hon’ble CESTAT held that the registrar is not representing the Appellants in any manner. The accreditation agreement gives the registrar no right, power or authority to operate or manage ‘.in’ registry. The agreement further permits each party to independently own its intellectual property, and none shall have any right, title or interest over the others’ intellectual property. Besides, the registrar collects registration data about registered name holders and submits the same to the Appellants for entering in the database maintained by the Appellants.

The Hon’ble CESTAT therefore concluded that the Appellants and registrars are independent entities operating on principal-to-principal basis and have been erroneously termed as franchisor-franchisee. The Appellants are not rendering any services to the registrars to be liable to pay service tax.

National Internet Exchange of India vs. C.S.T., Service Tax, Delhi, CESTAT New Delhi decided on 27-7-2018 in Appeal No. ST/52214/2014 [DB]

National Internet Exchange of India

2. Whether a credit card ‘Issuing Bank’ is liable to pay service tax on the amount received from the bank of the merchant (Accruing Bank) under ‘Credit Card Services’?

Facts & pleadings: M/s ABN Amro Bank NV (hereinafter referred to as the ‘Appellants’) is a banking company which is engaged in the business of issuance of ‘credit cards’ to their customers. Credit card issuing banks are known as ‘Issuing Banks’. Normally, when the customers swipe their credit cards while making payment to merchants, the amount goes to the ‘Acquiring Bank’ (bank of the merchant).

The Acquiring Bank makes necessary payment to the merchants after deducting service charges from the total amount. Also, the Acquiring Bank pays service tax on the amount retained. After payment of service tax, it transfers a portion of the amount to the Issuing Bank i.e. the Appellants in the instant case.

It is the case of the department that the Appellants have in fact rendered ‘Credit Card Services’ to the Accruing Banks, and have received consideration for the same in terms of the amount transferred by the Acquiring Bank as aforementioned- which is taxable under Section 65(105) (zzzuu) of the Act.

The Appellants contended that the Acquiring Bank has already paid service tax on the total amount out of which a certain amount is transferred to the Appellants. Therefore, no service tax liability arises on the Appellants.

Judgment:  The Hon’ble CESTAT held that no service tax is payable by the Appellants when the same has been paid at highest level by the Acquiring Banks relying on the judgment of the Allahabad High Court in the case of CCE vs. Chotey Lal Radhey Shyam, 2018 (8) GSTL 225 (All).

The Hon’ble CESTAT also noted that ‘Credit Card Services’ inter alia means settlement of any amount transacted through the credit card. According to the Hon’ble CESTAT, in the instant case, the Appellants are not undertaking settlement of any amount, it is merely the bank which has issued the credit cards. The Hon’ble CESTAT thus upheld that the Appellants are not rendering ‘Credit Card Services’, and the demand against the Appellants is not sustainable.

M/s. ABN Amro Bank NV (Presently known as Royal Bank of Scotland NV) vs. Commissioner, Central Excise, Customs & Service Tax, Noida, CESTAT, Allahabad decided on 23.7.2018 in Appeal No. ST/1921/2012-CU[DB]

ABN Amro Bank NV (Presently known as Royal Bank of Scotland NV)

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.