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Interest Component Of EMI Of Loan Availed On Credit Card Is Not Exempt From IGST: Calcutta High Court

Parina Katyal
7 July 2022 5:00 AM GMT
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The Calcutta High Court has ruled that the interest component of the Equated Monthly Instalments (EMIs) of a loan advanced by a bank on a credit card is not exempt from IGST.

The Single Bench of Justice Hiranmay Bhattacharyya held that the services rendered by the bank by way of extending loans amounted to credit card services and hence, the interest component of the EMI of the said loan was interest involved in credit card services, which is excluded from the exemption conferred under Notification No. 9/2017 - Integrated Tax (Rate), dated June 28, 2017.

The petitioner Ramesh Kumar Patodia holds a Citi Bank Credit Card, on which he availed a loan issued by the respondent Citi Bank. The loan was repayable in EMIs along with an additional initial interest amount. The respondent Citi Bank charged IGST of 18% on the initial interest amount as well as on the interest component of the EMI. The petitioner requested the respondent bank to reverse the said IGST charges; however, the respondent bank did not reverse the said IGST charges and continued to charge IGST. Against this, the petitioner filed a writ petition before the Calcutta High Court. The petitioner sought a declaration from the High Court that the interest component of the EMI of the loan granted by the respondent bank to the petitioner is exempted from levy of IGST in view of the Notification No. 9/2017 - Integrated Tax (Rate), dated June 28, 2017. The petitioner prayed for a direction to the respondent bank and the IGST authorities to refund the IGST collected from the petitioner.

As per Serial No. 28 of the Notification No. 9/2017 - Integrated Tax (Rate), dated June 28, 2017, issued by the Ministry of Finance, Department of Revenue, inter-state supply of services by way of loans or advances, in so far as the consideration is represented by way of interest (other than interest involved in credit card services), is exempted from levy of Integrated Tax.

The petitioner Ramesh Kumar Patodia submitted before the Calcutta High Court that inter-state supply of services by way of loans or advances, in so far as the consideration is represented by way of interest, is exempted from levy of Integrated Tax as per Serial No. 28 of the Notification No. 9/2017 - Integrated Tax (Rate), dated June 28, 2017.

The petitioner added that the respondent bank had acted de hors the said notification by charging IGST on the interest component of EMI.

The respondent Citi Bank objected to the maintainability of the writ petition. The respondent averred that the reliefs claimed against the respondent Bank, who is not a nationalized Bank, were not maintainable in a writ petition filed under Article 226 of the Constitution of India.

The respondent submitted that the loan was extended to the petitioner on the basis of the credit card issued by the Bank. Thus, the respondent contended that the interest component of the EMI was on account of credit card services, which is not exempted as per the said notification.

The Court observed that under Article 226 of the Constitution of India, the High Court has the power to issue directions, orders or writs to any person or authority. The Court noted that the Supreme Court in the case of Federal Bank Ltd. versus Sagar Thomas and Ors. (2003) had held that a writ petition under Article 226 of the Constitution of India may be maintainable against a private body who is discharging a public duty or a positive obligation of public nature, and also against a person or a body who is under a liability to discharge any function under any statute in order to compel it to perform such a statutory function.

The Court noted that the respondent bank is a registered person under Section 25 read with Section 22 of the CGST Act, 2017. The Court further observed that the respondent bank was collecting IGST from the petitioner under the provisions of the Integrated Goods and Services Tax Act (IGST Act), 2017 and that the respondent bank is required to act in terms of the provisions of the IGST Act read with the CGST Act while charging IGST.

The Court observed that the petitioner had sought a declaration that the interest component of the EMI of the loan granted by the respondent bank to the petitioner is exempted from the levy of IGST in view of the Notification dated June 28, 2017. Further, the Court noted that, apart from the bank, service tax authorities had also been impleaded as respondents in the writ petition.

The Court noted that the writ petition had been filed by the petitioner to compel the respondent bank and the service tax authorities to perform their obligations in accordance with the provisions of the statute regarding levy and collection of IGST and to grant exemption as per the notifications issued under the relevant statutes, upon a declaration being made in that regard.

Thus, the Court held that in view of the law laid down in Federal Bank Ltd. (2003), the writ petition was maintainable.

The Court ruled that from a perusal of the terms and conditions of the offer of loan made by Citi Bank, it was evident that the said offer was valid only for customers holding a Citi Bank Credit Card issued in India and who avail the said loan on their card digitally.

The Court observed that the offer of loan was restricted to a particular category of persons holding the Citi Bank Credit Card. The Court noted that the criteria for processing the loan, the manner in which the EMI of loan was reflected in the Credit Card statements as well as the mode of payment proved that the service rendered by Citi Bank in extending the said loan was a service pertaining to the said credit card.

The Court, thus ruled that the services rendered by the bank by way of extending of loans to the petitioner amounted to credit card services.

The Court held that the expression "other than interest involved in credit card services" appearing under Serial No. 28 of the said Notification dated June 28, 2017, carves out an exception by excluding the interest on credit card services from the purview of the said exemption notification.

Hence, the Court ruled that the services rendered by the bank by way of extending loans to the petitioner amounted to credit card services and that the interest component of the EMI of the said loan was interest involved in credit card services, which is not exempted by Notification no. 9/2017- Integrated Tax (Rate), dated June 28, 2017.

Thus, the Court dismissed the writ petition.

Case Title: Ramesh Kumar Patodia versus Citi Bank Na and Ors.

Dated: 24.06.2022 (Calcutta High Court)

Citation: 2022 LiveLaw (Cal) 263

Counsel for the Petitioner: Mr. Romendra Kumar Biswas, Ms. Ujani Pal (Samanta)

Counsel for the Respondents: Mr. Prabhat Kumar Srivastawa, Mr. K. K. Maiti, Mr. Rajesh Kumar Shah

Click Here To Read/Download Order

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