A loan transaction between a credit card holder and a bank without any nexus to the credit card is not chargeable to Integrated GST, the Calcutta High Court has held. The high court said so in an appeal filed by Kolkata-based Ramesh Kumar Patodia against Citibank.

The Tamil Nadu branch of CitiBank had granted a loan to the tune of Rs 6,50,000 to Patodia since he was a credit card holder with the bank. However, the loan was disbursed by the bank through an account payee cheque, and no charge was created on the card. Subsequently, the entire loan amount was repaid to the bank along with the interest and IGST levied thereon. The service of charging interest on loans is exempt, according to a 2017 government notification exempting certain interstate supplies of services from IGST.

However, the notification makes an exception for the interest involved in credit card services. It said that interest charged on credit card services would not be exempt. Since the bank had charged IGST from Patodia based on this notification, he approached the Calcutta High Court to seek redressal.

Before the court, he contended that the loan transaction between him and the bank should be exempt from the levy of IGST since the loan granted by the bank had nothing to do with the credit card or the service that the bank was rendering in relation to it.

The bank argued that Patodia was granted the loan because he was a credit card holder and that this grant of loan formed a part of the credit card services being rendered to him.

The condition regarding the levy of IGST was duly accepted by him while availing the loan, it said.

The high court disagreed with this argument.

The court highlighted that it is a well-settled principle that mere acceptance of a condition prohibited by law does not make the said condition enforceable.

The court said that if the loan was advanced through the use of the card, then one could understand that the service was related to the card. However, in this case, holding a card with the bank only made Patodia eligible to receive a loan.

Although credit card services fall outside the purview of the exemption, there is no mention of loans given to credit card holders. Therefore, a rigid view causing hardship to the borrower must not be taken unless it has been expressly provided by the statute, the court said.

The court directed the bank to refund the entire IGST amount collected for the loan facility within three months.