2023 (7) TMI 1102 - HC - GST

Bank cannot levy GST on credit card loan instalments as they constitute separate lending transactions

Ramesh Kumar Patodia Versus City Bank N.A. and Ors.

Calcutta HC held that GST levied on credit card loan instalments was improper. The court distinguished between credit card services and loan transactions, ... Levy of GST - Credit Card loan - tax charged by the bank on each instalment of interest together with the loan amount paid by the appellant. As per I. P. Mukherji, J Transaction was a credit card service or not? - HELD THAT:- It is quite plain that to constitute credit card service, the service should be between the issuer of the card and the holder of the card and that the service should have some relationship or nexus with the holding, operation or use of such card including transactions made with it. Otherwise, a bank may be an issuer of a card to a card holder. The same card holder may be an ordinary savings account holder with the bank. The service rendered by the bank in relation to such ordinary account holding does not have any relationship with the service rendered by the bank to the same customer as a card holder in transactions concerning the card - The loan transaction had to be taken as an altogether separate transaction. It had no relationship with the relationship between the appellant and the bank arising out of issue, holding or operation of the credit card. Hence, the appellant’s above transaction with the bank was a service which could not be termed as a credit card service and was not exigible to the Integrated Goods and Service Tax under the notification dated 28th June, 2017 - appeal allowed. As per Biswaroop Chowdhury, J. Besides accepting the conclusions arrived by I. P. MUKHERJI J., the followings have been added by Mr. Biswaroop: As respondent City Bank granted Loan to the appellant repayable with interest it is to be treated as loan simpliciter and cannot be equated with Credit Card. The basic difference between loan and credit Card is that the former is granted as a necessity and is a welfare scheme and the later is a facility granted to customers to get goods and services on credit from 3rd parties by availing the Credit Card Services of the Bank regarding payment - Thus loan and Credit Card Services cannot be equated. Thus loan to a Credit Card holder is to be treated as a loan and nothing else. Appeal allowed. Issues Involved:1. Whether the loan granted to the appellant was a credit card service subject to IGST.2. Whether the appellant is entitled to a refund of the IGST paid.Summary:Issue 1: Whether the loan granted to the appellant was a credit card service subject to IGST.The appellant contended that the loan provided by Citi Bank was independent of the credit card services and should not be subject to IGST. He argued that the loan was advanced by cheque and not through the credit card, and the equated monthly instalments (EMIs) were merely reflected in the credit card statements for convenience. The bank, however, maintained that the loan was part of the credit card services, as the appellant was eligible for the loan due to his status as a credit card holder, and the terms of the loan explicitly included the levy of IGST.The court examined the relevant legal provisions, including the definition of 'credit card services' under Section 65(33A) of the Finance Act, 1994, and the exemption notification No. 9/2017- Integrated Tax (Rate). It concluded that the loan transaction was separate from the credit card services. The loan was advanced by cheque and not through the use of the credit card, thus it did not constitute a credit card service. Therefore, the interest charged on the loan was not subject to IGST under the notification dated 28th June 2017.Issue 2: Whether the appellant is entitled to a refund of the IGST paid.The court held that since the loan transaction was not a credit card service, the IGST charged by the bank was not justified. The appellant is entitled to a refund of the IGST paid. The court directed the respondent Nos. 2, 3, and 4 to refund the IGST amount to the respondent bank, which in turn will refund the amount to the appellant upon furnishing proper accounts. This process is to be completed within three months of the communication of the order.Separate Judgment by Biswaroop Chowdhury, J.:Judge Biswaroop Chowdhury concurred with the judgment but added that the loan granted to a credit card holder should be treated as a loan simpliciter and not as an additional facility annexed to the credit card. He emphasized that loans are welfare schemes and should not be subjected to IGST unless explicitly provided by statute. He also highlighted the principle that when two views are available in loan disputes, the one favoring the borrower should be accepted. Therefore, the loan to the appellant should be treated as a loan and not a credit card service, and the appeal was allowed, setting aside the order of the learned single judge.