Maintenance of Minimum Average Balance is a contractual condition, not consideration exigible to Service Tax.

The petitioners, comprising Public Sector and private banks, challenged Show Cause Notices (SCNs) issued by the Directorate General of GST Intelligence. The SCNs demanded service tax for the pre-GST period (up to 30.06.2017) on "free" banking services provided to customers who maintained a Minimum Average Balance (MAB).

The Revenue contended that the commitment to maintain MAB constituted a "non-monetary consideration" for a "declared service" under Section 66E(e) of the Finance Act, 1994 (agreeing to the obligation to do an act).

The Revenue sought to value these services notionally based on the penalty fees charged to customers who failed to maintain MAB.

The petitioners argued that MAB is merely a contractual condition, not consideration, and that service tax was already being paid on penalties collected from defaulting customers.

1. Whether the maintenance of a Minimum Average Balance (MAB) by a customer constitutes "non-monetary consideration" for services rendered by a bank, making it exigible to service tax under the Finance Act, 1994?

2. Whether the Revenue has the jurisdiction to issue SCNs based on a notional/deemed valuation of services when no actual consideration is charged?

3. Whether the writ petitions are maintainable despite the existence of an alternative remedy of replying to the SCNs?

The Court applied Section 65B(44) of the Finance Act, 1994, which defines "service" as an activity carried out for consideration.

It examined Section 66E(e) regarding "declared services" involving the obligation to do an act and Section 67 regarding the valuation of taxable services, which requires a nexus between the amount charged and the service provided.

The Court relied on the Supreme Court's decisions in CST v. Bhayana Builders (P) Ltd., which held that free supplies by a recipient are not "consideration", and Union of India v. Intercontinental Consultants and Technocrats, affirming that tax is only on the actual value of services rendered.

The Court applied the binding nature of Board Circulars (Circular No. 178/10/2022-GST and Circular No. 214/1/2023-Service Tax), which clarify that there must be an express contractual nexus and flow of consideration for an activity to be taxable.

The Court reasoned that for an activity to be a "service," there must be a necessary and sufficient nexus between the supply and the consideration.

It found that maintaining MAB is a "condition of contract" rather than "consideration". The Bank acts as a custodian of the deposit (a liability), and the customer retains the right to withdraw funds at any time; thus, the Bank does not "receive" the deposit as payment.

The Revenue's attempt to use the penalty amount (charged for breach of MAB) as a deemed value for services provided to non-defaulting customers was deemed logically flawed and a form of double taxation, as tax is already paid on actual penalties collected.

The Court noted that the Revenue had dropped similar proceedings against South Indian Bank, accepting that the "quid pro quo" was missing.

Since the issue involved a pure question of law regarding jurisdictional facts, the Court held that relegated the petitioners to an alternative remedy would be futile and a "ritualistic exercise".

The Court quashed the impugned Show Cause Notices in all four writ petitions, declaring them to be without jurisdiction, premeditated, and contrary to statutory mandates. All petitions were allowed.