Loan given to credit-card holders will not be different from normal loan and will not attract Goods and Services Tax (GST), Calcutta High Court has ruled.
The issue here was whether loan given to a credit-card holder should be treated as part of credit-card services or like any other loan provided by a financial institution. This issue is critical as a notification, dated 28th June, 2017, exempts loan transactions from GST, but interest charged for credit-card services are not exempted. Earlier, a single judge bench had ruled that interest charged on loan given to credit-card holder is exigible to GST. Later, an appeal was filed.
The appellant was offered a loan of ₹6.50 lakh being “increased pay lite loan” for 12 months with interest at the rate of 13 per cent per annum payable in 12 equated monthly instalments. The loan amount was disbursed by the bank by an account payee cheque. The entire loan amount along with interest was repaid along with GST.
After going through all the facts presented and arguments made, both the judges, Justices IP Mukherjee and Biswaroop Chowdhury, recorded their remarks individually, before arriving at a common point that loan given to a credit-card holder is not part of credit-card services.
According to Justice Mukherjee, 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,” he said.
“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,” he said.
Justice Chowdhury observed that AaBanking Institution has a discretion 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.
The basic difference between loan and credit card is that the former is granted as a necessity and is a welfare scheme and the later is a facility granted to customers to get goods and services on credit from 3rd parties by availing the credit card cervices of the bank regarding payment. Thus, “loan and Credit Card Services cannot be equated,” he said.
Accordingly, the bench directed tax department to immediately refund the GST paid by the respondent bank on account of the said loan transaction of the appellant to the respondent bank which in turn will refund the amount on furnishing proper accounts to the appellant.
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