2023 (7) TMI 1102 - HC - GST

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, ... Integrated Goods and Services Tax - credit card services - exemption under Notification No. 9/2017- Integrated Tax (Rate) - loan simpliciter vs facility annexed to credit card - inter state supply as service - value includes interest - refund of wrongly collected IGSTCredit card services - loan simpliciter vs facility annexed to credit card - exemption under Notification No. 9/2017- Integrated Tax (Rate) - Integrated Goods and Services Tax - Whether the loan advanced to the appellant (a credit card holder) constituted a credit card service exigible to IGST or was a loan simpliciter exempted under the notification - HELD THAT: - The court applied the established meaning of credit card services (as appearing in the Finance Act definition) and examined the factual nexus between the service rendered and the holding, operation or use of the card. The loan to the appellant was disbursed by account payee cheque and was not generated or transacted through the use of the card; its appearance in the card statement was a statement of account for repayment convenience. Credit card services require a relationship or nexus with the issuance, operation or transactions effected by the card. The notification dated 28th June, 2017 exempts interest involved in loan transactions generally, with a specific carve out only for interest involved in credit card services; since the present loan had no nexus with use of the card and was a conventional loan repayable with interest, it could not be equated with credit card services. Consequently, the interest component was not exigible to IGST under the exemption notification and the bank's levy of IGST on the loan interest was held to be incorrect.The loan was a loan simpliciter and not a credit card service; the IGST charged on the interest was not exigible.Refund of wrongly collected IGST - Integrated Goods and Services Tax - Whether the appellant is entitled to refund of the IGST collected by the bank on the loan interest - HELD THAT: - Having held that the transaction was not a credit card service and that IGST was not exigible on the interest, the court directed that the IGST paid by the respondent bank in respect of the impugned loan transaction be refunded by the appropriate respondents to the bank, which in turn shall refund the appellant on production of proper accounts. The court rejected the bank's submission that prior acceptance of the tax condition by the appellant rendered it enforceable, observing that a condition prohibited by law cannot be made enforceable merely by acceptance. The refund exercise was directed to be completed within three months of communication of the order.Appellant entitled to refund; respondents directed to refund the IGST through the bank within three months.Final Conclusion: Appeal allowed; the impugned judgment and order of the learned Single Judge is set aside. The loan granted to the appellant is to be treated as a loan simpliciter and not as a credit card service; IGST charged on the interest was not exigible and shall be refunded in accordance with the order within three months. 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.