BENGALURU: The Karnataka High Court quashed the show-cause notices (SCNs) issued by the Union government to three public sector banks demanding service tax on the prescribed penalty levied from customers for not maintaining a minimum average balance (MAB).
Justice SR Krishna Kumar passed the order quashing SCNs and all further proceedings pursuant thereto while allowing the separate petitions filed by Canara Bank, Bank of Baroda and the Karnataka Bank Ltd, in 2020 against the SCNs issued by the Ministry of Finance, Union of India, in January and June 2020, as to why service tax was not paid by the banks for various periods up to June 30, 2017 (pre-GST regime) should not be demanded and recovered from them together with interest and penalty.
“The SCNs are unsustainable in law, and without jurisdiction and bereft of statutory sanction. The same are ex facie contrary to the circulars as well as the scheme and mandate of the provisions of the Finance Act”, the judge noted. The Ministry of Finance contended in the SCNs that the petitioners are the banks had incurred liability towards service tax in respect of the services rendered by them to their customers.
The banks contended that only in the event the customers committed breach or default in complying with the condition of maintaining MAB, the services would still be provided subject to payment of penalty and in the absence of any consideration being charged by the banks to the customers for providing the said services without charging penalty and upon maintaining MAB, the Ministry of Finance did not have any jurisdiction or authority of law to demand service tax from the petitioners who are not liable to pay service tax as demanded in the SCNs.