360° UPSC Mains Analysis

If neither tax nor fee, what is this ‘expropriation’, Supreme Court asks Govt on UPI MDR charges

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Institutions

Supreme Court of India

Role: Adjudicating the constitutional validity of Section 10A of the Payment and Settlement Systems Act, 2007, and the government's notification on UPI MDR.

Type: constitutional

National Payments Corporation of India

Role: The umbrella organization that introduced the merchant discount rate (MDR) framework of 0.4% on specified UPI payments.

Type: executive

Reserve Bank of India

Role: The designated regulatory authority for payment and settlement systems in India under the Payment and Settlement Systems Act, 2007.

Type: statutory

Acts & Statutes

Payment and Settlement Systems Act

Year: 2007

Relevance: The petitioner challenged the constitutional validity of the amended Section 10A of this Act, which prohibits banks or system providers from imposing charges on prescribed electronic payment modes.

Key Provisions: Section 10A

Income-tax Act

Year: 1961

Relevance: Section 269SU of this Act mandates businesses with turnover above a certain threshold to provide facilities for accepting payments through prescribed electronic modes, which is directly linked to the no-charge protection under Section 10A of the Payment and Settlement Systems Act, 2007.

Key Provisions: Section 269SU

Judicial Precedents

Case: Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt

Year: 1954

Significance: Established the classic distinction between a 'tax' (compulsory exaction for public purposes without quid pro quo) and a 'fee' (levied for a specific service rendered with some element of quid pro quo), which is central to the SC's question on the nature of the MDR.

Case: In re Delhi Laws Act, 1912

Year: 1951

Significance: Laid down the limits of delegated legislation, ruling that the legislature cannot delegate its 'essential legislative functions' to the executive, which is relevant to the challenge against Section 10A for giving 'unguided powers' to the Executive.

Governance Framework

Under the Seventh Schedule of the Constitution, 'Banking' and 'Bills of exchange, promissory notes and other like instruments' fall under Entry 45 and Entry 46 of List I (Union List). Consequently, the Union Parliament has exclusive jurisdiction to legislate on payment and settlement systems, and the Central Government holds the executive power to issue notifications regarding UPI and digital payments.

Constitutional Articles

Right to Equality

Article: Article 14

Relevance: Invoked to challenge the discrimination between RuPay debit cards (which enjoy unlimited no-charge protection) and UPI transactions (subject to MDR above ₹2,000), and to contest the 'unguided power' delegated to the Executive.

Taxes not to be imposed save by authority of law

Article: Article 265

Relevance: Relevant to the Supreme Court's inquiry into the nature of the MDR levy, as any compulsory extraction of money by the State must be legally classified and authorized as either a tax or a fee.

Persons not to be deprived of property save by authority of law

Article: Article 300A

Relevance: Directly relates to the Supreme Court's questioning of the 'expropriation' of merchant revenues, which constitutes a deprivation of property that requires clear statutory authorization.

Right to practice any profession, or to carry on any occupation, trade or business

Article: Article 19(1)(g)

Relevance: Applies to the potential financial burden and unreasonable restriction imposed on merchants by levying a 0.4% MDR on digital transactions.

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