The Delhi High Court on Monday agreed to hear a petition filed by banks against the government for demanding Rs 38,000 crore as service tax.

The government made the demand from banks for “treating the commitment of customers to maintain minimum average balance (MAB) in bank accounts as a consideration for banking facilities provided free”.

A two-judge bench of Justices S Muralidhar and Talwant Singh 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. While posting the matter for further hearing on November 14, the high court had stayed the show-cause notices issued by the government to the banks till further hearing.

A total of 13 banks had approached the high court claiming that the government had arbitrarily decided on the service tax to be charged from them by multiplying the penalty imposed by the banks with the total number of accounts held with the bank. Some banks, such as HDFC Bank Limited are facing a penalty of up to Rs 18,000 crore, said an advocate representing the banks. The total amount, if the interest and penalty are both included, could reach up to Rs 60,000 crore, the advocate said.

Other than the Delhi High Court, a similar petition by three banks is pending before the Madurai Bench of the Madras High Court. The three banks which have approached the Madras High Court face a total penalty of Rs 1,200 crore.