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Amount retained by Issuer bank in form of ‘Merchant discount rate’ is out of GST ambit

March 12, 2019[2019] 103 taxmann.com 140 (AAR - MAHARASHTRA)
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GST : Where applicant company, engaged in business of issuance and operation of prepaid payment instruments, entered into an agreement with a bank for issuing and operating prepaid instruments as business correspondent of said bank and launched co-branded prepaid cards with said bank and Merchant discount rate (MDR) was charged by issuing bank as interchange fee from merchant on every card transaction, since MDR was rate charged by acquiring bank from merchant on every card transaction and applicant was neither a supplier nor a recipient and there was no supply of goods or services or both, applicant could not file an application for advance ruling under section 97 in respect of questions that whether MDR received by issuing bank from Merchant on every card transaction was liable to tax under Goods and Services Tax

• The applicant was in the business of issuance and operation of prepaid payment instruments as per RBI guidelines. Prepaid payment instrument included mobile wallet and prepaid card. The applicant-company had entered into an agreement with 'F' bank. The applicant was issuing and operating prepaid payment instruments as business correspondent (BC) of said Bank. As part of BC arrangement, the applicant had launched co-branded prepaid cards in India with bank powered by MasterCard.

• The applicant filed an instant application seeking an advance ruling in respect of the questions that whether the portion of the Merchant Discount Rate received by the issuing bank as 'Interchange Fee' from Merchant on every card transaction was liable to tax under the Goods and Services Tax.

• Merchant Discount Rate is the rate charged by acquiring bank from merchant on every card transaction. This MDR is as per agreement between acquiring Bank and merchant establishment. From a perusal of transaction it is clear that applicant is neither a supplier nor a recipient and the questions raised is not in relation to the supply of goods or services or both, being undertaken or proposed to be undertaken by the applicant and as such by virtue of section 95 the applicant cannot make an application before this authority.

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