2019 (3) TMI 1008 - AAAR - GST

Exemption from tax or not - amount charged as interest on transaction based short term loan given by the Del Credere Agent (DCA) to buyers of material - N/N. 12/2017-Central Tax (Rate) dated 28.06.2017 (Serial Number 27) - Section 15(2)(d) of the CGST Act, 2017 - Sr. No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 Difference of opinion. - Both members passed separate order.

Summary

Issues Involved:
1. Taxability of interest on short-term loans provided by Del Credere Agent (DCA) to buyers.
2. Interpretation of Section 15(2)(d) of the CGST Act, 2017.
3. Applicability of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
4. Definition and role of Del Credere Agent under GST law.
5. Authorization for filing appeal under Section 107 of the CGST Act, 2017.

Issue-Wise Detailed Analysis:

1. Taxability of Interest on Short-Term Loans Provided by DCA to Buyers:

The core issue is whether the interest charged by the DCA on short-term loans provided to buyers is exempt from GST under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The applicant argued that the interest on such loans is not for delayed payment of the consideration for any underlying supply but is charged towards the loan given to the customers. The AAR ruled that the service provided by the DCA by way of extending short-term loans, where the consideration is represented by way of interest, is exempt from GST under Sl. No. 27 of the said Notification.

2. Interpretation of Section 15(2)(d) of the CGST Act, 2017:

The appellant (CGST Department) contended that the interest charged by the DCA for delayed payment is connected with the transaction of supply of goods and should be included in the value of taxable supply under Section 15(2)(d) of the CGST Act, 2017. The applicant countered that the interest does not flow to the supplier of goods and is a separate transaction between the DCA and the buyer. The AAR concluded that the interest charged by the DCA is not for delayed payment of consideration for the supply of goods by the principal but is for the loan given to the customers, thus not falling under Section 15(2)(d).

3. Applicability of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017:

The Notification exempts services by way of extending deposits, loans, or advances in so far as the consideration is represented by way of interest. The appellant argued that the DCA's activities are not purely financial services but also involve the supply of goods on behalf of the principal. The AAR, however, ruled that the interest on short-term loans provided by the DCA to buyers is covered under the Notification and is exempt from GST.

4. Definition and Role of Del Credere Agent under GST Law:

The appellant asserted that the DCA is an agent under Section 2(5) of the CGST Act, 2017, and should be treated as a supplier acting on behalf of the principal. The applicant argued that the DCA's role is limited to order booking and guaranteeing payment, and the transactions between the DCA and buyers are separate from the supply of goods by the principal. The AAR agreed with the applicant's view, stating that the DCA's activities of providing short-term loans are independent of the supply of goods by the principal.

5. Authorization for Filing Appeal under Section 107 of the CGST Act, 2017:

The applicant challenged the authorization for filing the appeal, arguing that the review power under Section 107(2) could only be exercised in cases where the adjudicating authority has passed an order. The appellant clarified that the appeal was filed under Section 100(1) of the CGST Act, 2017, and the authorization was proper and legal. The AAR found the appeal valid and did not dismiss it on this ground.

Separate Judgments:

Ajay Jain's Findings:

Ajay Jain concluded that the interest earned by the DCA on payments made to the principal on behalf of the buyer is part of the same transaction of supply of goods and should be included in the value of taxable supply, thus chargeable to GST. He emphasized that the DCA's obligation to make payments to the principal is an inevitable part of the contract and not a separate transaction of extending loans.

Dr. P.D. Vaghela's Findings:

Dr. P.D. Vaghela agreed with the AAR's ruling, stating that the DCA's activities of providing short-term loans to buyers are separate from the supply of goods by the principal. He held that the interest charged by the DCA on such loans is exempt from GST under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. He dismissed the appeal, emphasizing that the transactions between the DCA and buyers are purely financial services and not connected with the supply of goods by the principal.