Cashbacks Received On Commercial Credit Card Usage Not Taxable As Service: CESTAT

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has dismissed the department’s appeal and held that cashback incentives received by the company from banks on usage of commercial credit cards cannot be subjected to service tax. The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that the airlines receiving payment through the credit cards were concerned only with receipt of payment and not with promotion of the issuing bank. The Tribunal endorsed the Commissioner’s finding that if the Revenue’s logic were accepted, then every credit card user receiving cashback would become liable as a service provider, which could not have been the intention of the legislature. The dispute arose after the Department alleged that Tek Travels, an IATA-approved online air ticket booking company, was rendering a taxable “declared service” to banks such as HDFC Bank and American Express by extensively using commercial credit cards issued by them for airline ticket bookings. According to the Department, the incentive or reward points received by the company for card usage constituted consideration for a service provided to the banks. Based on audit objections, show cause notices were issued demanding service tax of more than Rs. 8.03 crore for the period from 2013-14 to 30 June 2017, along with interest and penalties. The department argued that the assessee’s use of the commercial credit cards amounted to performance of an activity under Section 66E(e) of the Finance Act, 1994 and that there existed a contractual arrangement between the company and the banks for payment of cashback incentives. The Department further contended that the assessee had failed to disclose material facts and therefore the extended limitation period was rightly invoked. However, the assessee contended that cashback incentives were not consideration for any service and that mere use of a credit card did not amount to promotion or marketing of the banks’ business. It was argued that the Department was attempting to travel beyond the allegations contained in the show cause notice by relying upon Section 66E(e) only at the appellate stage. The company also argued that acceptance of the Department’s interpretation would absurdly result in every credit card holder becoming a service provider to banks merely because cashback or reward points were received. The Tribunal agreed with the findings of the adjudicating authority and observed that there was no evidence showing that Tek Travels was undertaking any promotional activity for the banks. The Bench noted that the agreements merely provided cashback incentives for usage of the card and did not impose any contractual obligation on the assessee to advertise or market the banks’ business. The Bench also analysed the nature of cashback schemes and held that such incentives are merely marketing tools used by banks to encourage greater usage of credit cards and by increase merchant fee earnings and other banking revenue streams. It held that cashback incentives are not consideration for any taxable service rendered by the cardholder to the bank. Relying on CBIC Circular No. 214/1/2023-ST dated 28 February 2023, the Tribunal reiterated that activities under Section 66E(e) become taxable only where there is a specific agreement to perform, tolerate or refrain from an act in return for consideration. In the present case, no such activity or consideration nexus existed. The Tribunal additionally held that the Revenue could not introduce a completely new legal basis at the appellate stage which was absent in the original show cause notice. Referring to several judicial precedents including the Supreme Court ruling in Shital International, the Bench observed that the show cause notice forms the foundation of the Department’s case and authorities cannot travel beyond its allegations. CESTAT also relied upon the Supreme Court’s ruling in Bhayana Builders Pvt Ltd. to reiterate that service tax can be levied only where there is an amount charged as consideration for a taxable service and there exists a clear nexus between the payment and the service rendered. Since cashback incentives did not satisfy these conditions, the demand was unsustainable. Case Details Case Title: Commissioner of Central Excise and Service Tax, Gurugram Versus M/s Tek Travels Pvt Ltd Citation: JURISHOUR-1269-CES-2026(CHAN) Case No.: Service Tax Appeal No. 60937 of 2019 Date: 14.05.2026 Counsel For Appellant: Siddharth Jaiswal Counsel For Respondent: Krati Siingh Click Here To Read Order Read More: Capital Introduced From AOP Funds Cannot Be Treated As Cessation Of Liability: ITAT Deletes Addition

Cashbacks Received On Commercial Credit Card Usage Not Taxable As Service: CESTAT

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