The Hon’ble High Court of Calcutta vide its order dated 25.07.2023 in the matter of Ramesh Kumar Patodia Vs. City Bank N.A. and Ors. in APO 10 of 2023 with WPO 547 of 2019, held that a credit card holder may be an ordinary saving 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. Further, Loan granted to the account holder is repayable with interest and therefore, is to be treated as loan simpliciter and cannot be equated with Credit Card.  Former is granted as a necessity and the later is granted as a facility to the customers to get goods and services on credit.  Thus, loan and Credit Card services cannot be equated.  Loan to a Credit Card Holder is to be treated as loan only and shall not be made liable to GST.

The Appellant filed the writ application before the Hon’ble High Court seeking a declaration that the transaction between him and the bank was exempted from the levy of IGST and that no amount on that account should have been charged and if charged refunded.

Facts of the Case: –

• The appellant, at the material time, had a credit card provided by Citi Bank (the respondent bank). On 21st February and 28th February, 2019, the respondent bank offered a loan of Rs. 6,50,000/- being “increased pay lite loan” to him for 12 months with interest @ 13% per annum payable in 12 equated monthly instalments. The loan amount was disbursed by the bank by an account payee cheque.
• The equated monthly instalment (EMI) amount was Rs.58,050/-. And, it was evident that with the payment of EMIs, the interest amount in each EMI gradually reduced. At the start, the interest amount in the first EMI was Rs.7,041.44/-. In the last EMI, the interest amount was Rs.621.98/-.
• That in respect of the appellant’s credit card, monthly statements were issued where this loan and the EMI payable thereon were indicated. On 16th May, 2019 the bank received a letter dated 13th May, 2019 from the appellant challenging the deduction of the said amount on account of IGST.

Submissions on the behalf of the Appellant: –

• It was submitted on the behalf of the Appellant (Appearing in-person) that it may be true that possession of the bank’s credit card by him entitled him to be offered the loan. Though, the advancement of loan by the bank had nothing to do with the credit card or the service which the bank was rendering in relation to it.  The Bank and the appellant entered into an independent agreement under which the former advanced Rs. 6,50,000/- to him by cheque to be repaid along with 13% interest in 12 equated monthly instalments.
• Therefore, the interest charged on the loan was not interest which is usually charged by the bank on account of loan advanced by use of the credit card. Therefore, the interest charged by the bank and paid by the appellant could not be subject to IGST.
• That only for the purpose of payment of equated monthly instalments each instalment amount was reflected in the credit card statement with reference to the loan as Loan Ref. No. 479832. However, the bank treated the interest as credit card service charge, which is liable to Integrated Service Tax.
• Referring to the definition of Credit Card Services as provided in Section 65(33A) of the Finance Act, 2006, the whole concept of credit card transaction was explained by the Appellant. It was submitted that the issuer of the card could also advance loan to the card holder by use of the credit card in the above manner.
• Further, for the credit card services the bank or the issuer of the card charges an annual fee or interest in case of deferred payment by the holder of the card. And, only on this kind of services IGST can be charged.
• Lastly, it was contended that the appellant was the holder of the bank’s card and the subject loan was advanced by the bank to Mr. Patodia which had nothing to do with card service. The loan was advanced by cheque, without the use of the card. Only payment had to be made on the basis of bills raised in the card statements of account.

Respondents Submissions: –

• It was submitted that the bank had entered into a contract with the appellant where it was provided that there would be levy of Integrated Goods and Service Tax on the interest charged. This condition regarding levy of the said tax was accepted by the appellant. Moreover, the appellant also accepted the equated monthly instalments, the number of instalments and the amount in each instalment, monthly interest and the said tax thereon.
• The Appellant was granted loan because he was a credit card holder. Hence, granting of loan was part of the credit card services being rendered by the bank to the appellant.
• Referring to notification 28^th June, 2017, it was submitted that the loan granted to the Appellant/Petitioner constituted card service and was exigible to IGST calculated on the interest charged.

Held: –

• The Hon’ble Court after considering the submissions made and facts of the case, discussed and took note of Section 65(105) (zzw) of the Finance Act, 1994; Section 2(12) (Integrated Tax); Section 5 (Charging Section); Section 15 (Valuation); Section 15(d) which states value would include interest or late fee or penalty; Section 2(102), Section 6 (Powers of Central Government); Section 73 & 74; Chapter V of the Finance Act, which has been already omitted.
• With the above, it was found by the Hon’ble Court that Grant of loan and charging interest on it by a lender situated in one state to a borrower situated in another state is an inter-state transaction. It is recognized as service for the purpose of imposition of the Integrated Goods and Service Tax.
• The respondent bank is situated in Tamil Nadu and the appellant in West Bengal. The latter availed of loan from the bank which was repayable with interest. This was considered as service rendered by the bank and the interest charged by the bank was viewed as a kind of service charge for advancing loan to the appellant. Hence, the said tax was charged.
• It was found by the Hon’ble Court that as per the terms of the loan, it was stated the loan was only available to holders of Citi Bank credit cards issued in India. Further, it was chargeable to IGST and Mr. Patodia applied for this loan according to those terms and conditions.  Therefore, the question to be decided is ‘whether this transaction was a credit card service? Whether the IGST charged by the bank was rightly done? If not, is the appellant entitled to refund?’¸when notification 9/2017 dated 28^th June, 2017 provides for exemption to the interest involved in the loan transaction, however, no exemption was granted to interest involved in credit card services.
• The Hon’ble Court referring to the definition of ‘Credit Card Services’ as provided in Section 65(33A) of the Finance Act, 1994, found 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. 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.
• It was found that if the loan was advanced to the appellant through use of the card, then one could have understood that the service was related to the card. However, in this case the loan amount was advanced by a cheque or draft issued by the bank.  The loan was not generated by charging the appellant’s card.  The loan monthly instalment was merely shown in the monthly statement of card, which was only a statement of account.  Therefore, it was observed that 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.
• It was held that 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.
• One of the members (Judge) of the Hon’ble Bench, allowed the appeal by setting aside the impugned order dated 24^th June, 2022. The respondents were directed to refund the amount collected by the appellant on account of IGST.
• However, the Second member (judge) of the Hon’ble Bench, with some additional findings, observed that the base of the present dispute is whether the loan granted to credit card holder is loan simpliciter or an additional facility provided with the credit card. It is contended by the respondent City Bank that the Appellant had accepted the condition of payment of Goods and Service Tax at the time of accepting the Loan, thus he cannot retreat from such acceptance.
• It was found that it is a well settled principle of law that mere acceptance of a condition prohibited by law does not make the said condition, enforceable in law. Thus, at the very outset it is necessary to decide as to whether loan granted to a holder of credit card is a facility annexed to the credit card or a loan simpliciter.
• Referring to Section 65(33A) and notification 9/2017 dated 28^th June, 2017, found that it is clear that that loan transactions are excluded from Integrated Goods and Service Tax Act 2017, without any exception that loan given to credit card holder is outside the purview. Although, credit card Services fall outside the purview of exemptions but there is no mention of loan given to Credit Card holder.
• It was found that the Loans are granted for different purposes, namely house building Education, Medical treatment Agriculture etc., similarly personal loans are also given. Hence, to fulfil certain objectives in society and pave the way for development in different fields loans are advanced. Thus, loan is a matter of necessity and not luxury.
• When goods and service Tax are exempted in case of loan transaction, it is applicable to all transactions coming under the category of loan. Any exceptions made with regard to category of loan namely credit card holder or other borrowers will go against the letter and spirit for which loan schemes are made and it will be violative of Article 14 and 21 of the Constitution of India.
• Further, it is the discretion of the Banking institution 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 goods and service tax on it.
• Therefore, the grant of loan by respondent City Bank to the appellant repayable with interest is to be treated as loan simpliciter and cannot be equated with Credit Card. Thus, loan to a Credit Card holder is to be treated as a loan and nothing else.  The Hon’ble Second Member also allowed the appeal by setting aside the order of learned trial judge.

To read the complete judgment 2023 Taxo.online 705