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

Calcutta HC held that GST levied on credit card loan instalments was improper. The court distinguished between credit card services and loan transactions, ruling that for a service to qualify as "credit card service," it must relate to card issuance, holding, or operation. A loan transaction between bank and credit card holder constitutes a separate service without nexus to credit card operations. The loan was deemed a simple lending transaction, not subject to Integrated GST under the June 2017 notification. 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.

---