SBI Wins Before CESTAT on Service Tax Demand for Interchange and Free ATM Services: Supreme Court to Hear Related Appeal Together [Read Judgement]

In a recent ruling,the Supreme Court of India, noted State Bank of India (SBI )’s win before Customs,Excise and Service Tax Appellate Tribunal ( CESTAT ) on service tax demand for interchange and free Automated Teller Machine (ATM) services and directed that the appeal be heard along with a related pending matter.

The Revenue-appellant,had filed five appeals against the part of the order that dropped the demand for the extended period from October 2010 to September 2013 and waived penalties under Sections 77 and 78. SBI filed cross-objections in four of these appeals.

State Bank of India, respondent-assessee,had filed five appeals on behalf of its five merged Associate Banks,State Bank of Patiala, Bikaner & Jaipur, Hyderabad, Mysore, and Travancore,challenging the service tax demand confirmed for the normal period from October 2013 to March 2015.

While the department dropped the demand for the extended period, it imposed penalties under Sections 75 and 76 of FinanceAct. In one of these cases, the department also filed a cross-objection.

The main issue was whether service tax applied to two types of transactions: first, the interchange fees received by Associate Banks from SBI for use of their ATMs and second, the free ATM services provided by one SBG Bank to another.

The banks used a common ATM network managed through a joint Switch, with SBI as the settlement agent. SBI had been paying service tax on behalf of the Associate Banks for over a decade, a practice accepted during audits.

After a departmental inquiry in 2013, the National Payments Corporation of India (NPCI ) assigned separate IDs to each bank, and from November 2014, the Associate Banks began paying their own service tax, though SBI continued to handle settlements.

The tribunal held that SBI had implied authority to act as agent and that service tax already paid could not be demanded again. It also found the department's claim of treating interchange fees as commission to be incorrect and concluded that the demand on interchange fees was not sustainable.

Regarding free ATM services within SBG, the CESTAT held that no service tax could be levied in the absence of consideration, monetary or otherwise. The arrangement was part of the original Switch setup and could not be treated as a barter. It relied on Supreme Court rulings which clarified that service tax cannot be imposed where no consideration exists.

On limitation, the tribunal ruled that the extended period under Section 73(1) could not be invoked. The banks had regularly filed returns, undergone audits, and no intent to evade tax was found. The belief that SBI was discharging tax as agent was held to be bona fide.

Accordingly, the CESTAT allowed SBI’s five appeals, dismissed the department’s five appeals and one cross-objection, and disposed of SBI’s four cross-objections.

Later, the matter reached the Supreme Court. While hearing the appellant’s counsel, the Court was informed that a related matter, Civil Appeal No. 4988 of 2025, involving the same issue and challenging the same common CESTAT order, was already pending.

Justice Rajesh Bindal and Justice R.Mahadevan condoned the delay, issued notice, and directed that the current matter be heard together with the pending civil appeal. Counsel for SBI appeared and accepted notice, waiving formal service.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates