No service tax on maintenance of minimum balance as consideration for Banking Services

By RATHI Service Tax Judiciary June 24, 2026

TaxGuru Citation: 2026 taxguru.in 7398
Case Name: Canara Bank Vs Union of India (Karnataka High Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: All High Courts, Karnataka High Court

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Canara Bank Vs Union of India (Karnataka High Court)

Conclusion: Non-maintenance of minimum balance by customers did not generate taxable consideration and, therefore, no service tax/GST, interest or penalty could be levied. Revenue was also bound by its earlier acceptance of an identical adjudication order in favour of another bank.

Held: Assessee-banks challenged show-cause notices proposing levy of service tax/GST on amounts arising from customers’ failure to maintain minimum average balance. The banks contended that there was no agreement whereby customers paid consideration in return for any independent supply of services. Reliance was placed on judicial precedents explaining the concept of “consideration” and on an earlier adjudication in the case of South Indian Bank wherein identical proceedings had been dropped and the order had been accepted by the Department. Department however raised a preliminary objection regarding availability of an alternative remedy and sought to sustain the show-cause notices. The Court held that a taxable supply under section 7 of the CGST Act requires a necessary and sufficient nexus between the supply and the consideration. Commitment by customers to maintain a minimum balance could not be regarded as consideration for the bank’s decision to provide certain facilities free of cost or at concessional rates. Consequently, no taxable supply arose and no liability to GST or service tax could be fastened. Since the Department had already accepted an earlier order dropping identical proceedings in the case of South Indian Bank, issuance of similar show-cause notices against other banks was unsustainable. Further, existence of an alternative remedy did not bar exercise of writ jurisdiction in the peculiar facts of the case.