SC Questions Legal Basis of Commercial UPI Transaction Charges
The Supreme Court questions the legal basis of charges on commercial UPI transactions above Rs 2,000, seeking replies from the Centre, RBI, and NPCI.
The Supreme Court of India has raised significant questions regarding the legal foundation and the actual nature of charges being imposed on commercial UPI transactions exceeding Rs 2,000. During a hearing on Monday, a bench led by Chief Justice of India (CJI) Surya Kant, along with Justices Joymalya Bagchi and V. Mohana, sought detailed responses from the Central government, the Reserve Bank of India (RBI), and the National Payments Corporation of India (NPCI).
The judicial scrutiny comes in response to a plea challenging two Gazette notifications that introduced these charges and outlined the process for their collection. The Court is looking to determine whether these levies constitute a legitimate fee or something else entirely.
Who Receives the Money?
A central point of contention during the proceedings was the ultimate destination of the funds collected through these transaction charges. Justice Bagchi directly questioned the respondent authorities regarding the transparency of the collection process.
"Who gets the payment? Who gets the fee?" the judge asked, seeking clarity on the movement of money within the ecosystem. The Court further probed the executive authority behind such a levy, questioning the scope of the government's power to implement what could be viewed as an expropriation of funds. The bench pressed for a definition of the charge's character if it cannot be classified as a standard fee.
The Argument for Service Costs
In response to the Court's inquiries, counsel representing the respondent parties attempted to explain the complex architecture of the Unified Payments Interface (UPI). Drawing a parallel to the existing debit and credit card systems, the counsel argued that UPI is a multi-stakeholder ecosystem.
The legal argument presented included the following points:
- Stakeholder Involvement: A single transaction involves the payer's bank, the recipient's bank, a coordinating agency, and the platform operators.
- Cost Sharing: The service charge is presented as a mechanism to distribute the operational costs required to maintain the payment infrastructure.
- Non-Governmental Nature: The counsel emphasized that the amount is not a statutory collection made by the Union government, stating that the government is "miles away from this money."
- NPCI's Role: It was argued that the NPCI acts merely as a facilitator for transactions rather than a collector of government revenue.
Taxation and Legal Characterization
The Court also delved into the financial and legal implications of these charges by referencing the Income Tax Act. Specifically, the bench examined the movement of money between various entities to understand whose hands the amount falls into and how it would be treated for tax purposes.
The discussion touched upon:
- Section 269: The Court examined under which entity the receipt of these charges would constitute an incidence of income.
- Section 269SU: The bench referred to this section, which governs specified electronic modes of payment, to analyze the flow of funds.
While the counsel maintained that the funds are received by the entities providing the two sides of the payment ecosystem—such as banks or aggregators—as part of an administrative mechanism, the Court remains focused on the legal legitimacy of the levy.
The Supreme Court has granted the Central government, the RBI, and the NPCI four weeks to file their counter-affidavits and address the questions raised during the hearing.