The show-cause notices was issued by the Tax Authorities is based on Section 66E(e) of the Finance Act 1994.Which classifies “agreeing to the obligation to do an act” as “Service” which is taxable and demanding service tax from the banks is based on the ground that the commitment of customers to maintain minimum average balance (MAB) in bank accounts is a “consideration”.
A petition has been filed by 13 banks against the show cause notice including Punjab National Bank, State Bank of India, HDFC, HSBC, Kotak Mahindra Bank, ICICI, Deutsche Bank, Yes Bank, Citi Bank, Standard Chartered Bank, Axis Bank etc. for treating the commitment of customers to maintain minimum average balance (MAB) in bank accounts as a consideration for banking facilities provided free against and the demand of Rs. 38,000 has been imposed.
The petition filed by the banks is on the view that the demand is based on a totally misconceived notion that bank facilities are conditional on maintenance of minimum account balance by the customers.
A similar petition is before the Madurai Bench of the Madras High court having a total penalty of Rs.1,200 crore is also pending which is approached by three banks.
S Muralidhar and Talwant Singh, A two-judge bench of Justices agreed to hear the matter and has issued notice to the central government, the Central Board of Indirect Taxes and Customs (CBIC), the Goods and Services Tax Council, and other authorities.
The high court had stayed the show-cause notices issued by the government to the bank till further hearing on November 14.