Loan facility to credit card holder not a credit card service, exempt from GST

The Hon’ble Calcutta High Court in RAMESH KUMAR PATODIA VERSUS CITY BANK N.A. AND ORS. - 2023 (7) TMI 1102 - CALCUTTA HIGH COURT held that the loan facility availed by a credit card holder, where being a credit card holder is a condition for eligibility, is not considered a credit card service. Instead, it is treated as a standard loan which is exempt under GST. Directed the bank to refund the GST collected from the assessee.

Facts:

Mr. Ramesh Kumar Patodia (“the Petitioner”) is a credit card holder of City Bank (“the Bank”) has availed the exclusive loan scheme offered only to credit card holder of the Bank.

Both the parties have entered into an independent agreement for such loan and a fixed an Equated Monthly Installment (“EMI”) for next 12 months. The EMI consists principal amount, interest and GST.

Later, the Petitioner raised the issue with the Bank that the loan transaction and its interest was separate from the credit card service and thus cannot be leviable to GST as per Sl. No. 28 of the Notification No. 9/2017- Integrated Tax (Rate) dated June 28, 2017 ('the Notification”).

The bank contended that the Petitioner was granted the loan only because he was a credit card holder and granting the loan was part of credit card services being rendered by the Bank. Moreover, the agreement entered between parties clearly states that GST would be leviable on the interest amount charged.

The other Respondent (the Central Government) contended that the Notification exempted service except credit card services from GST and since the loan granted by the bank to the Petitioner constitutes the card service thus, it would be exigible to GST.

Issue:

Whether the loan facility provided exclusively to the credit card holder would be the considered as credit card service and thereby exigible to GST?

Held: 

The Hon’ble Calcutta High Court in RAMESH KUMAR PATODIA VERSUS CITY BANK N.A. AND ORS. - 2023 (7) TMI 1102 - CALCUTTA HIGH COURT held as under:

• Observed that, the agreement between the Bank and the Petitioner cannot be enforced in light of a well settled principle of law that mere acceptance of a condition prohibited by law does not make the said condition, enforceable in law.
• Noted that, the loan was advanced by a cheque and not by using the credit card. Being a credit card holder was merely an eligibility criteria for availing such loan facility. The advanced loan and its repayment along with interest were an altogether separate transaction from the credit card facility offered by the Bank.
• Further noted that, the Banks has a discretion whether to give loan to a credit card holder but once it chooses to grant loan to a credit card holder it has to treat the loan similar to other types of loan, and cannot treat the same as credit card facility and charge GST on it.
• Held that, the transaction of granting of loan was a service which could not be termed as a credit card service and thus not exigible to the GST being exempt as per Sl. No. 28 of the Notification.
• The court directed the Bank and other Respondents to refund of the IGST paid by the Petitioner.  

Our Comments:

An applaudable judgement by Hon’ble Calcutta High Court, distinguishing the loan and the credit card services. The credit card holder who has availed such loan facility are advised to revisit their credit card statement and check whether bank has charged GST on such interest amount or not since, merely mentioning loan repayment EMI in the credit card statement does not make the facility of loan as a credit card services and thereby exigible to GST.

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