Bengaluru: Karnataka high court has ruled that penalty charges collected by banks from customers for non-maintenance of minimum average balance (MAB) cannot be treated as ‘consideration’ flowing into banks.Since minimum balance is a contractual stipulation with banks, its breach attracts penalty, Justice SR Krishna Kumar observed in an order passed on June 1, allowing a batch of petitions filed by Canara Bank, Bank of Vadodara and Karnataka Bank.A minimum average balance, or average monthly balance, is an average daily closing balance a customer must maintain in a bank account for a certain period. The minimum balance and period may vary from bank to bank.The petitioners challenged the show-cause notices issued over payment of service tax on penalty collected from customers for non-maintenance of minimum balance up to June 30, 2017. This refers to the pre-GST period.The petitioners argued they did not charge any consideration for services provided to customers who maintained the stipulated balance. On the other hand, the ministry of finance argued imposition of penalty indicated that banks are providing additional services for customers who maintain minimum balance. After considering arguments, Justice Krishna Kumar said petitioner-banks “neither foist nor compel” any customer to maintain the stipulated balance. The choice is left to the customer.The court observed that though a customer is levied a penalty over breach of minimum balance, he or she continues to earn interest on deposits. The banks do not suspend or discontinue payment of interest on the account, the judge observed, while quashing the notices issued by the central tax department.
