It has been noticed that banks are charging service tax on interest for different type of loans and debts in credit card. This is an ILLEGAL activity as Service tax on Interest is covered under the Negative list of services in the Service Tax Act of India.
ALL THE BANKS ARE VIOLATING AND NOT FOLLOWING ANY RULES, ACT, AND CIRCULARS OF RBI OR INDIAN GOVERNMENT FOR TAXATION.
But when we approached and confronted the banks it appeared that the banks consider themselves above law.
Let’s us consider the magnitude of these frauds – for example if there are about 75 lakh cardholders for one bank; e.g HDFC bank. And they charge service tax on average INR 100/- per card account per month.
This becomes INR 75 crores per month and yearly 900 corore for a single bank– which is a gigantic amount, which on the first instance is UNLAWFUL n ILLEGAL and above this the banks are not paying this to the concerned department in GOI and keeping the money for themselves.
Banks are charging Interest for providing following loan or debt facility on credit cards for following heads:
- Purchase converted in to EMI
- Balance transfer
- personal loan with same credit card account
- personal loan in credit card with different loan or card account
- cash on call loan
- cash withdrawal interest
- revolving credit as for making minimum payment facility
- delayed payment
- or whatever name the bank names it for loans, etc
ICICI, HDFC, SBI, Standard Chartered, and many more banks charge service tax on interest of all these loans and debts.
But some of the bank like CITI, HSBC, and Indus bank are charging service tax on interest of some of the above mentioned loans and debts and there is no uniformity in this regards. Some banks are charging service tax on all type of loans or debts interest whereas some banks are charging of some type of loans or debts interest
And if you ask or inquire from these banks, they will inform different reasons of RBI or give reference to omitted or deleted Notification or rules of Service tax of CBEC. And if you stop payment for this reason they will harass and threaten you and will give wrong information and advice. Some of the excuses are as follows:
- They will refer to the omitted clause of notification of letter F.No.BII/1/2000-TRU, dated July 09, 2001 with effective date from July 16, 2001
- they will make a reference of Education Guide dated June 20, 2012 issued by ‘Tax Research Unit’
- They will also mention some of rules and regulation issued by RBI circulars
- Some banks will tell that get a confirmation in their name from tax authority that the bank should not charge the service tax on interest
- Or get a judgment or order from Supreme Court in this regard and that they will not accept any other judgement made in other courts/appellate in India. In my example they have refused to accept an order by CESTAT, Bangalore bench for exemption of service tax on interest on loan for Canara Bank and say that this order is not binding on them by citing, the order of CESTAT is for Canara bank and in Bangalore and we are in Mumbai and different bank or NBFC etc
- Or some will tell that these rules are specially made for them and they have got the clearance from RBI and tax authority. And they will never share these information in writing with you
- Or we are charging to everyone why you are asking for that
- why you have used the card etc
- Or earlier you have no information-why you are raising this issue now
- Or they will try to delay tactics by keeping silence for many months.
- why the customers are paying for restaurant and mobile bill who are also charging service tax as suggested by HDFC and SBI
- everybody like kirana store and restaurant also charges service tax as informed by HDFC executive
- And many more false excuses and arguments
But when all the bankers and related to banking industry appear physically, they unofficially agree that the service tax is not chargeable to interest of any type of loan and interest in credit card or otherwise of any type of loan and debt.
These service tax is charged every month and can be very small or big. But when we accumulate it to in years then it becomes a big amount. Due to these small amounts every card holders pay and do not raise any voice against this.
But if we consider 5 crore card holder for all the banks having paid 1000 per year then the amount becomes to 5000 corer per year and the banks are cheating the Indian public since last 15-20 years and if we consider 15 years then amount becomes 75000 crores
To safeguard all the credit card holders a mass media movement and a PIL and court cases in the public interest are required for this unlawful criminal activity done by Banks. We need a mass Credit card holders and public movement for this unlawful activity by banks
So I request all the friends to forward and share this message to everyone by their available media resources like face book, twitter, etc to and their friends that every Indian credit card holders should raise the complaint with his credit card bank and also in the court for justice
I am giving a detailed synopsis about the exemption of service tax on interest and legal position and arguments for future complaint with banks:
When the issue came into my knowledge and I checked on to my accounts I found that I have already paid a huge amount to these banks under the Service Tax on Interest headings. It was sometimes in June/July 2015 and I started approaching the banks for the reversal. I did not stop the payment ot these cards for another 2-3 months – but when all my mails and requests were unheard by these banks, I stopped the payments to these card accounts.
I have always replied and sent them complete regulations and a strong support for the same, an order of CESTAT, Bangalore bench, which has clarified all the rules and regulation for exemption of service tax on interest from 2004 till 2012 and after that the interest is in negative list as per section 66D(N).
But when I stopped the payments, HELL broke loose for us. We have been through nightmares – the banks and their executives and collection agents have broken each and every rule in the book and harassed us on phones, in person and also breached the privacy of me and my relatives and friends.
The executives have called my relatives – my mother, brother, sister, son and even relatives in Kolkata who are not even closely related. They have threatened me and my brother of dire consequences, told us that they will send Goondas to pick us up from our places and thrash us, and so on …
During my interactions with the banks since June/July 2015 the banks have answered and argued with me on some different or lapsed rules and guidelines of Service Tax Act or of RBI to hide their unlawful criminal unlawful activity of charging the service tax on interest by again doing criminal activity by EDITING and manipulating the tax law as per their convenience.
I would like to mention here that the service tax is governed by Indian Governments CENTRAL BOARD OF EXCISE AND CUSTOMS and RBI has nothing to issue rules and guidelines about this. Many times the bank has made reference of some RBI circulars
To clarify every point and objection raised by the banks a detailed argument, analysis and clarification from me in support of service tax exemption on interest with service tax ACT, Rules Circulars as per service tax law.
THIS IS THE REPLY RECEIVED FROM ICICI BANK WHEN I HAD MADE A COMPLIANT TO THEM
“we wish to reiterate and submit that with regard to levy of Service Tax on the aforementioned credit card or loan availed on the basis of credit card (Personal Loan on Credit Card – Within the Limit/Over the limit) or advances is covered under the negative list of services prescribed under section 66D of Finance Act, 1994, by virtue of which it is not liable to Service Tax. However, as specified in B11/1/2001-TRU and Education guide published by the Service Tax department (CBEC), interest on credit card is subject to Service Tax“
- Many times Banks have quoted the reference of letter F.No.BII/1/2000-TRU, dated July 09, 2001 with effective date from July 16, 2001 ofthe Central Board of Excise and Customs (CBEC) vide para 2.2 in under the category Banking and other financial services. I would like to inform you that as per in heading of Banking and Financial services point NO 1 (ii) credit card and service and details are explained in the para 2.2 as sub clause of main para No 1(ii)
TO COUNTER THIS ARGUMENT FROM BANK —-I would like to remind the banks that this whole para of 1(ii) and further clarification in 2.2 has been omitted and deleted since 1 May 2006. A clarification in this regard issued by the Board / Ministry:
Credit Card related services: Credit card services till 1.5.2006 were taxable under Banking and other financial services. Now, tax is comprehensively levied on all services provided in respect of or in relation to credit card, debit card, charge card or other payment card in any manner. The major services provided in relation to such services are specifically mentioned under the definition ” Credit Card, Debit Card, Charge Card or Other Payment Card Service ” [ vide M.F.(D.R.) letter D.O.F. No. 334/4/2006-TRU dated 28.02.2006 ]
I would like to inform the banks that prior to May 1, 2006 the credit card services were taxable under “Banking and other financial services and with effect from May 1, 2006, new Service Tax category “credit card, debit card, charge card or other payment card service” has been introduced to charge the Service Tax on credit card related services.
SO ALL THE DETAILS MENTIONED ABOUT CREDIT CARD SERVICE IN 2001 CIRCULAR ARE OMITTED/DELETED AND REPLACED BY NEW SECTION 65 (105) (zzzw) AND SECTION 65 (33a), SO NO QUESTION OF FOLLOWING or ABIDING CIRCULAR OF 2001 AFTER 1 May 2006
- AND FOR THIS THE BENCH OF JUDE OBSERVED AS —“ After giving careful consideration to the submissions, ………… In this scenario, the legal provisions cited by the learned counsel become relevant. During the period of dispute, “interest on loans” was in the excluded category and was not to be included in the gross value charged by the bank for rendering ‘credit card services’.`
- AND FINALLY GAVE AN ORDER IN FAVOUR OF BANK AS– “ The appellant having made out a prima facie case is, therefore, entitled to waiver and stay. We, therefore, allow this application granting waiver and stay in respect of the adjudged dues“
This order gives full picture of exemption of service tax on interest in credit cards. So this order clarifies all the rules and regulation of service tax exemption for interest.
- Further submit that after 1 July 2012 that, with regard to levy of Service Tax on the credit card or loan availed on the basis of credit card (Personal Loan on Credit Card – Within the Limit/Over the limit) or advances with or without documents is covered under the negative list of services prescribed under section 66D(n) of Finance Act, 1994, by virtue of which it is not liable to Service Tax.
- The banks have made a reference of Education Guide dated June 20, 2012 issued by ‘Tax Research Unit’ of ‘Central Board of Excise & Customs’ —The banks have not seen the total educational guidance and an interesting disclaimer qualifying the legal status of this guidance paper appearing in para 1.2 is a rather strange position to take about this initiative. The disclaimer read as follows:
“It is clarified at the outset that this guide is merely an educational aid based on a broad understanding of a team of officers of the issues. It is neither a Departmental Circular nor a manual of instructions issued by the Central Board of Excise and Customs. To that extent it does not command the required legal backing to be binding on either side in any manner. The guide is being released purely as measure of facilitation so that all stakeholders obtain some preliminary understanding of the new issues for smooth transition to the new regime.”
So there is no legally status about this education guide. The Notification or act issued by CBEC or appellate order or court orders have a legal status
- On one hand the banks are asking and going as per education guide which has no legal status and on other hand the banks are not abiding and honouring the Appellate order which has got all the legal status. This education guide has no legal status and cannot be referred to any court but the appellate order has legal status and can be referred at any court in India. According to education guide never any circular or rules are made or issued but in appellate order all the rules and regulation of Service Tax Act for exemption of service tax on interest is explained in detailed and admitted in the order by honourable Judge. And this CESTAT stay order issued only on the basis of Prima facie finding of SERVICE TAX ACT RULES Notifications AND REGULATIONS. So there is no legally status about this education guide and since issue of this guidelines in June 2012 it has been never updated as per new changes till December 2015. The Notification or act issued by CBEC or appellate order or court orders have a legal status
- furthermore clarification– Specific exclusions:
The definition of Service Tax as defined in Section 65B (44) of the Finance Act states that “service means any activity carried out by one person to another for a consideration and includes Declared Services but shall not include (i)….(ii)…..(iii) a transaction in money or actionable claims.” Further the negative list provided in Section 66D specifically mentions certain services which are non-taxable, which are:
- Extending deposits, loans and advances, in so far as the considerations is represented by way of interest or discount.
- Inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange pr amongst banks and such dealers.
Hence as per the exclusions provided by the statute, all the income earned by the bank are subject to service tax except for income by way of interest or discount or sale or purchase of foreign currency amongst banks and financial institutions. Transaction in the nature of mere money are loans, deposits, repos, reverse repos, Commercial paper, Certificate of Deposits, Forward Contract in commodities and currencies, Future Contracts.
- Meaning of Interest:
Interest is defined in Section 65B(30) as ‘ interest means interest payable in any manner in respect of moneys borrowed or debt incurred (including deposit, claim or similar rights and obligations) but does not include any service fee or other charges in respect of moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.’
Rule 6(2) of the Service tax (Determination of Value Rules), 2006 specifically excludes interest on delayed payments from the value of taxable value. And also the interest is covered under the negative list of services prescribed under section 66D(n) of Finance Act, 1994, by virtue of which it is not liable to Service Tax. Hence interest in any form is exempt from tax.
- Banks are doing criminal activities repeatedly as followings
- Charging unlawfully service tax on interest due to malafide intention or unfair trade and practice or deficiency in service on part of the Bank while collecting the tax in compliance of the law.
- Hiding the facts of unlawful activity done by making wrong replies and expired or deleted clause of notification
- having knowledge of all the tax laws but every time quoting edited or manipulated or deleted taxation laws
- not abiding to present tax laws
- not abiding to stay order of Appellate authority clearing all the doubts about tax law
I am enclosing a copy of the CESAT order for reference.
Also attached is an article by C.A. DEV KUMAR KOTHARI, Shree Seetharaman K C in the same context.