2019 (8) TMI 1285 - AAR - GST

Levy of GST - amount received on or after 01.07.2017 towards interest, late fee penalty relating to the services other than continuous supply of services(CSS) rendered by the applicant before 01.07.2017 - agreeing to tolerate an act - Pre-GST regime - HELD THAT - The question relates to the services rendered by the applicant in Pre-GST regime, i.e., during service tax regime of taxation. We find that the applicant leases/ rents the port space and collects lease rentals. The applicant as per the license/ rent agreement/ contracts collect lease rental charges and in cases of belated payment/ default, late-fee/ penal interest as stipulated in the contracts are collected by them, for which a separate invoice (RCA) is raised. It is stated that the invoices have been raised during the service tax regime and service tax paid but the applicant has received interest, late fee, penalty in the current period, i.e., under GST regime of taxation as the consideration was received belatedly. The provisions of Section 13 of CGST and TNGST Act come into effect from 1 st July 2017. From 1 st July 2017 onwards, the liability to pay GST on supply of services is determined by the time of supply in Section 13 - In the instant case, the applicant has collected an amount as interest/ late fee/ penalty for the delayed payment of consideration for the original service. This amount was received after 1 st July 2017 and separate invoices Rent Claim Advance (RCA) Receipt are raised by the applicant. There is a payment of a separate consideration for this tolerance of delayed payment of lease / rent. This payment is a part of the contract for supply of services of the applicant to the port user in the course of their business. It can be said that as the applicant has tolerated the delayed payment of consideration of lease/ rent which the recipients should have paid much before. Therefore, this tolerance on the part of the applicant for the delayed payment of lease/ rent by collecting an interest/ late fee / penalty is a separate supply of service as covered under Section 7 (1) (a) of the Acts. The service namely agreeing to tolerate an act, is squarely covered under the classification scheme of the services. Further, the consideration for this was received and the invoice (RCA) raised both only after 1 st July 2017. Accordingly, the time of supply for this supply will be determined by Section 13(2) depending on the facts in each case. In any case, it would be after 1 st July 2017 and hence, this supply is liable to GST.

Summary

Issues:
1. Whether interest, late fee penalty received for services rendered before GST regime are liable to GST?

Analysis:

Issue 1:
The Applicant sought an Advance Ruling on the liability of GST on interest, late fee, and penalty received post-GST implementation for services rendered before 01.07.2017. The Applicant argued that such amounts are not subject to GST if related to services provided pre-GST regime. The State Jurisdictional Officer highlighted the need for clarity on the timing of levying late fees and penalties. The Authority analyzed the documents provided, including Rent Claim Advices (RCAs) showing penalties for belated payments pre-GST. The Authority considered the provisions of CGST and TNGST Acts, emphasizing the importance of the time of supply as per Section 13 for GST liability determination.

The Authority noted that the Applicant's services were provided pre-GST, involving lease rentals and penalties for delayed payments. The invoices were issued during the service tax regime, but penalties were received post-GST due to late payments. The Authority referenced the notification specifying the enforcement date of various GST Act sections. Section 13 of CGST and TNGST Acts determines the time of supply, with the Applicant's invoices issued pre-GST but payments received post-GST, making the time of supply pre-GST as per Section 13(2)(a).

Furthermore, the Authority examined Section 7 of CGST and TNGST Acts, defining supply to include various transactions like lease or disposal for consideration. The late fees and penalties collected post-GST for delayed payments were considered a separate supply of service under Section 7(1)(a). The Explanatory Notes on service classification supported this interpretation. As the consideration and invoices were post-GST, the time of supply for these additional services falls after 01.07.2017, making them subject to GST.

In conclusion, the Authority ruled that interest, late fees, and penalties received post-01.07.2017 for lease/rent services due to delayed payments pre-GST are indeed liable to GST.