Let’s salute the spirit of a common man, Mr. Ramesh Kumar Patodia, who fought against the mighty Citi Bank and and won the case in Calcutta High Court, where it held that IGST is not levied on Interest on Loan amount & directed Bank to REFUND the tax collected as IGST on Interest

online where when authorized by the card issuer merchandise or service can be bought by use of the card by an online method, by making a transaction with a merchant or service provider indicating the card number, the CVV number and so on. The issuer of the card could also advance loan to the card holder by use of the credit card in the above manner. Mr. Patodia contended that for this type of service 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. This kind of service rendered can be called card services. Only on this kind of service could IGST be charged, levied and paid.
On the basis that the appellant was the holder of the bank’s card 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.

 The following contentions were made by the respondent bank: 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. He had 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. Granting of this loan was part of the credit card services being rendered by the bank to the appellant.

The respondent No. 4, the Central Government made the following submissions:- Integrated Goods and Services Tax (IGST) is payable on rendering of inter State goods and service. The particular service of grant of loan was made by the respondent bank from Tamil Nadu to the appellant in Kolkata for which IGST is leviable. Thereafter, learned counsel placed the IGST Act, 2017 in the greatest detail to show how this kind of service of providing loan was exigible to service tax. He referred to the notification dated 28th June, 2017 which exempted service except credit card services from tax. An illustration was drawn from Section 65(105)(zzzw) of the Finance Act, 1994 which stipulated that service in relation to inter alia card service was
taxable. Therefore, the exemption notification of 28th June, 2017 did not exempt card service. The loan granted by the bank to the petitioner constituted card service and was exigible to IGST calculated on the interest charged.

DISCUSSION

Section 65(105)(zzzw) of the Finance Act, 1994 defined taxable service as one by one person to any other person in relation to inter alia credit card or card service. The Integrated Goods and Services Tax Act, 2017 received the assent of the President on 12th April, 2017 and was published in the gazette of India on the same day.
The preamble to the Act makes a provision for the levy and collection of tax on inter state supply of goods or service or both by the Central government and for matters connected thereto and incidental therewith. Section 2(12) defines “integrated tax” as the integrated goods and services tax levied under the Act.
Section 5 is the charging section which provides for levy of this tax on an interstate supply of goods or service or both on the value of goods or service under Section 15 of the Central Goods and Services Tax Act, 2017. In Section 15(d) value would include interest or late fee or penalty.
Section 2(102) defines service as “anything” other than goods, money and securities but including activities “relating to the use of money” and at rates not exceeding 40% to be notified by the government to be paid by a taxable person.
Section 6 grants power to the Central government to exempt generally or absolutely or subject to such conditions the levy of this tax. By Sections 73 and 74 of the Central Goods and Services Tax Act, 2017, inter alia Chapter 5 of the Finance Act, 1994 dealing with service tax was omitted.
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. 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 payable thereon.
Now, by the 28th June, 2017 notification this kind of service with one exception “Interest involved in credit card services” was exempted from imposition of this tax. The terms and conditions on which the loan was granted to the appellant inter alia stated that it was only available to holders of Citi bank credit cards issued in India. Further, it was exigible to IGST. Mr. Patodia applied for this loan according to those terms and conditions. The question 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? Credit card service has not been defined in the IGST Act, 2017. A good way to proceed would be to apply the definition of “credit card services” in the Finance Act, 2006 amending Section 65(33A) of the Finance Act, 1994. It was conceived of a service provided by a banking company or a financial institution or a non-banking financial company or institution issuing a
card to a card holder. It also extended to such institutions settling any amount “transacted through such card”. 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. 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. In this case, the bank declared the appellant card holder to be eligible to receive loan. His loan amount was advanced by a cheque or draft issued by the bank.
That is to say, the loan amount was not generated by charging the appellant’s card. It appears in the monthly statement issued in relation to use of the card, that the loan amount was shown and the equated monthly instalment payable indicated. In my opinion, it was only a statement of
account. 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. The appeal succeeds. It is allowed. The impugned judgment and order dated 24th June, 2022 of the learned single judge is set aside. The respondent Nos. 2, 3 and 4 are directed to immediately refund the IGST paid by the respondent bank 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. The entire exercise is to be completed within three months of communication of this order.

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Ramesh Kumar Patodia

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