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

The Equated Monthly Instalments (EMIs) of a loan advanced by a bank on a credit card are not exempt from IGST, according to a decision by the Calcutta High Court.

In the case of Ramesh Kumar Patodia v. Citi Bank N.A. and Ors. (WPO 547 OF 2019), the Single Bench of Honourable Justice Hiranmay Bhattacharyya determined that the bank’s loan-extension services amounted to credit card services, and as a result, the interest component of the EMI of the aforementioned loan was interest involved in credit card services, which was excluded from the exemption granted under Notification No. 9/2017 – Integrated Tax (rate), dated June 28, 2017.

Facts of the case:

Ramesh Kumar Patodia, the petitioner, has a Citi Bank credit card, which he used to obtain a loan from the respondent Citi Bank. The loan was repayable over time in equal payments along with an initial interest charge. The respondent Citi Bank assessed IGST at a rate of 18% on both the initial interest payment and the interest portion of the EMI. The petitioner asked the respondent bank to reverse the aforementioned IGST charges, but the respondent bank refused and kept on billing IGST. The petitioner filed a writ petition with the Calcutta High Court in opposition to this. In light of the Notification No. 9/2017 – Integrated Tax (Rate), dated June 28, 2017, the petitioner asked the High Court to declare that the interest component of the EMI of the loan granted to him by the respondent bank is exempt from the imposition of IGST. The petitioner asked God to give the respondent bank and the IGST authorities instructions to return the IGST they had taken from him.

According to 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, interstate service provision made possible by loans or advances is exempt from the imposition of integrated tax insofar as the consideration is represented by way of interest (other than interest associated with credit card services).

Ramesh Kumar Patodia, the petitioner, stated before the Calcutta High Court that, in accordance with Serial No. 28 of the Notification No. 9/2017 – Integrated Tax (Rate), dated June 28, 2017, the interstate supply of services made possible by loans or advances is exempt from the imposition of integrated tax.

The petitioner continued by claiming that the responding bank had violated the terms of the notification by adding IGST to the EMI’s interest component.

Respondent Citi Bank raised a concern about the writ petition’s ability to be maintained. The respondent asserted in a writ petition submitted under Article 226 of the Indian Constitution that the reliefs sought against the respondent Bank, which is not a nationalized Bank, were not maintainable.

The respondent claimed that the petitioner’s eligibility for the loan was determined by the Bank’s credit card, which was issued to her. In light of the fact that credit card services are not exempt according to the aforementioned notification, the respondent argued that the interest component of the EMI was due to them.

The High Court has the authority to issue directions, orders, or writs to any person or authority, the Court noted, in accordance with Article 226 of the Indian Constitution. The Court noted that the Supreme Court had determined that a writ petition under Article 226 of the Indian Constitution may be maintained against a private body that is performing a public duty or a positive obligation of a public nature, as well as against a person or a body that is required to perform any function under any statute in order to compel it to carry out such a statutory function. This case involved Federal Bank Ltd. v. Sagar Thomas and Ors.

The Respondent Bank is a Registered Person under Sections 25 and 22 of the CGST Act of 2017, the Court noted. The Court also noted that the respondent bank was charging the petitioner IGST in accordance with the provisions of the Integrated Goods and Services Tax Act (IGST Act), 2017, and that it was required to act in accordance with those provisions as well as those of the CGST Act.

The Court noted that the petitioner had requested a declaration that, in light of the notification dated June 28, 2017, the interest component of the EMI of the loan granted to the petitioner by the respondent bank is exempt from the levy of IGST. The Court also observed that in the writ petition, in addition to the bank, service tax authorities had also been named as respondents.

The petitioner had filed a writ petition to compel the respondent bank and the service tax authorities to carry out their duties in accordance with the statute’s provisions regarding the levy and collection of IGST and to grant exemption in accordance with the notifications issued under the relevant statutes, upon a declaration being made in that regard, the court noted.

As a result, the Court determined that the writ petition was maintainable in light of the law established in Federal Bank Ltd. (2003).

The Court determined that it was clear from a review of the terms and conditions of the loan offer made by Citi Bank that the said offer was only valid for clients who held a Citi Bank Credit Card issued in India and who accessed the said loan digitally.

The Court noted that the loan offer was limited to a specific group of people who had Citi Bank credit cards. The criteria for processing the loan, how the loan’s EMI was reflected in credit card statements, as well as the method of payment, were all cited by the court as evidence that the service provided by Citi Bank in extending the said loan was a service related to the said credit card.

The Court concluded that the bank’s services in extending loans to the petitioner qualified as credit card services.

According to the Court, the phrase “other than interest involved in credit card services” found under Serial No. 28 of the aforementioned Notification dated June 28, 2017, creates an exception by excluding interest on credit card services from the scope of the aforementioned exemption notification.

Therefore, the court determined that the petitioner’s loans from the bank constituted credit card services, and that the interest included in those services was included in the loan’s EMI and was not exempted by Notification No. 9/2017- Integrated Tax (Rate), which was issued on June 28, 2017. The writ petition was thus dismissed by the Court.

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Judgement Reviewed By Manju Molakalapalli.

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