Loan to Credit Card Holders are Not Part of Credit Card Service, No GST Exemption: Calcutta HC [Read Order]

The Calcutta High Court has held that loans to credit card holders are not part of credit card service and held that No Goods and Service Tax Exemption.

Ramesh Kumar Patodia, the appellant writ petitioner (the appellant) had a credit card provided by Citi Bank (the respondent bank). The respondent bank offered a loan of Rs.6,50,000/- being an “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 date of advancement of loan.

The Equated Monthly Instalments (EMI) amount was Rs.58,050/-. It was stated that with the payment of EMIs, the interest amount in each EMI gradually reduced. The principal amount was adjusted accordingly so that in the last EMI the principal amount was shown as Rs.57,434.02/-, interest Rs.621.98/- resulting in the last EMI of Rs.58,056/-.

In respect of the appellant’s credit card, monthly statements were issued where this loan and the EMI payable thereon were indicated. The bank received a letter dated 13th May 2019 from the appellant challenging the deduction of the said amount on account of Integrated Goods and Service Tax (IGST). 

The entire amount of the loan has been repaid to the bank by him together with interest and IGST.  The appellant has sought 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.  

Mr Patodia appeared in person very strongly and argued that it may be true that possession of the bank’s credit card by him entitled him to be offered the loan. The advancement of loans by the bank had nothing to do with the credit card or the service which the bank was rendering about it.

The bank and he 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. Hence, the interest charged on the loan was not interest which is usually charged by the bank on account of a loan advanced by the use of a credit card. Therefore, the interest charged by the bank and paid by the appellant could not be subject to IGST. 

Mr Patodia added that only for payment of equated monthly instalments, each instalment amount was reflected in the credit card statement. There was a reference to the loan as Loan Ref. No. 479832.

The bank treated the interest as a credit card service charge exigible for Integrated Service Tax, he argued. He showed us the Finance Act, of 1994. In Section 65(12) which defined banking and other financial services, credit card service was not specifically included within those services.

If the loan was advanced to the appellant through the use of the card, then one could have understood that the service was related to the card. The loan amount was advanced by a cheque or draft issued by the bank. It appeared in the monthly statement issued about the use of the card, that the loan amount was shown and the equated monthly instalment payable indicated. The loan transaction had to be taken as an altogether separate transaction.

Justice I. P. Mukerji directed the respondent to immediately refund the IGST on account of the above loan transaction of the appellant to the respondent bank which in turn will refund the amount on furnishing proper accounts to the appellant.

Justice Biswaroop Chowdhury added further that the basic difference between a loan and a credit card is that the former is granted as a necessity and is a welfare scheme and the latter 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.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates