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(ii) SBG Banks had installed ATMs predominantly in their respective regions for the benefit of their customers, who were issued ATM cum Debit Card by them;

(iii) SBG Banks had a common logo and ATMs of all SBG Banks were known as "State Bank ATM". It was, therefore, difficult for the customers to know to which constituent of the SBG Banks the ATM belongs.

To address this issue, it was decided that SBG Banks shall not charge any fees from the customers for use of the ATMs of other SBG Banks. SBG Banks had also set up a common Information Technology infrastructure for seamless customer service across SBG Banks;

18. To examine this issue, it would be appropriate to revert to the factual position. The SBG Banks had installed ATMs predominantly in their respective regions for the benefit of their customers, who were issued the ATM cum Debit Cards by them. These SBG Banks had a common logo and the ATMs of all the SBG Banks were known as "State Bank ATMs". The consumers would not know the particular bank to which the ATM belongs and, therefore, it was decided that SBG Banks will not charge any fees from the customers for the use of the ATMs of the other Banks. It was, therefore, necessary for the SBG Banks to set up ATM Switch on co- ownership basis. SBI had a 50% share, while each of the five Associate Banks had a share of 10% each. The banks had contended that though the SBG Switch was jointly owned, but all the capital expenditure and operating expenses relating to SBG Switch were shared amongst each of the SBG Banks in proportion of the ownership interest in the SBG Switch. As the SBI had the largest share, it registered the SBG Switch in its own ST/50862/2019 & 9 others name prior to centralized registration w.e.f. 01.10.2010. SBI was also a settlement agency authorized by the Reserve Bank of India.

19. In case of ATM transactions involving two Banks where the ATM Card issuing bank is different from the bank on whose ATM the card has been used, NPCI would settle interchange fees with SBI. In turn, SBI would settle the same with the Associate Banks without any mark-up. Conversely, if a customer of an Associate Bank transacted on the ATM of a Bank other than that of SBG Banks ATM, the Associate Banks would have to pay the required to pay interchange fees, which was settled by the Associate Banks through SBI and SBI in turn settled it with NPCI. Since SBI had the largest share in the SBG Switch, the SBG Banks agreed amongst themselves that SBI would discharge their service tax liability on the interchange fees settled by SBI as their agent, after adjusting the service tax paid on the interchange fees paid by SBI as their agent. There was, however, no formal written agreement to this effect. It has been stated that this was not felt necessary when the SBG Switch was initially set up and thereafter considering that none of the party ever disputed the arrangement and the Associate Banks were subsidiaries of SBI, the same was not formalized. Since the SBG Switch was separately registered with service tax authorities and service tax was claimed to have been paid by SBI as their agent, the Associate Banks claim that they were under a bona-fide belief that the same was not required to be registered again in their own name in proportion of their share. On the same ground, the Associate Banks also claim that they were under a bona-fide belief that since SBI had been discharging service tax liability as their agent, the question of again paying service tax on an amount net of service tax received from SBI did not arise. This arrangement was followed since the ST/50862/2019 & 9 others inception of the SBG Switch i.e. for more than 10 years prior to show cause notice period. Post the enquiry, NPCI agreed to recognise each of the Associate Banks transactions separately by allotting them separate BIN ID by treating SBI as BIN sponsor and accordingly with effect from 25.11.2014, the interchange fees receivable/payable to the Associate Banks was separately identified by NPCI, though it continues to be settled by the Associate Banks through SBI. The Associate Banks, therefore, discharged service tax liability on such interchange fees received after taking credit for the service tax paid on interchange fees paid by the Associate Banks.

28. Thus, the demand of service tax on the ATM interchange fee (termed as commission) received by the Associate Banks from the SBI for deployment of ATMs owned by the Associate Banks in the shared network could not have been confirmed.

Second Issue

29. This issue relates to demand of service tax on a notional basis on the free ATM services provided by the constituents banks of the SBG Banks to each other.

30. The SBG Switch is a common Switch co-owned by all the SBG Banks, though the capital expenditure and operating expenses relating to SBG Switch were shared amongst each of the SBG Banks in proportion of their ownership interest in SBG Switch. So far as the customers are concerned all ATMs were known as "State Bank ATM". The Associate Banks did not charge fee from another constituent of the SBG Bank if the customer of one Associate Bank transacted on an ATM of another SBG Bank. The demand of service tax has been confirmed on transactions by ST/50862/2019 & 9 others the customers of SBG Banks on the ATMs of other SBG banks on the ground that service tax is payable, where non monetary consideration, including the understanding to provide certain services free of cost on reciprocal basis.