2018 (5) TMI 809 - AAR - GST

Exemption from GST - amount charged as interest - Whether an amount charged as interest on transaction based short term loan given by the Del Credere Agent (DCA) to buyers of material is exempt from tax in terms of the N/N. 12/2017-Central Tax (Rate) dated 28.06.2017? - Held that - the extension of loan by the applicant (DCA) to the customers is a transaction separate from the transaction of supply of goods by the principal to the customers against consideration wherein the applicant (DCA) also gets the commission from the principal - the interest received by the applicant is consideration towards loan extended to the customers and such interest is not towards the payment of consideration for supply of goods by the principal to the customers, which is a separate transaction. As per Sl. No. 27 of the table to N/N. 12/2017-Central Tax (Rate) dated 28.06.2017, services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services) is exempt from payment of Goods and Services Tax - As in the transaction of extension of loan by the applicant, the consideration is received by way of interest, the same is covered by Sl. No. 27 of the table to N/N. 12/2017-Central Tax (Rate) dated 28.06.2017, and hence exempted from payment of Goods and Services Tax. Ruling - Service provided by M/s. Shreenath Polyplast Pvt. Ltd. by way of extending short term loans in so far as the consideration is represented by way of interest, is covered under Sl. No. 27 of the N/N. 12/2017-Central Tax (Rate) dated 28.06.2017 and N/N. 12/2017-State Tax (Rate) dated 30.06.2017, and hence exempt from payment of Goods and Services Tax.

Summary

Issues:
1. Whether interest charged on short term loans by a Del Credere Agent (DCA) to buyers of material is exempt from tax under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017?

Analysis:
The applicant, M/s. Shreenath Polyplast Pvt. Ltd., acting as a DCA, plays a dual role of order booking and guaranteeing payment for goods supplied by the principal. The DCA does not directly supply goods to customers but facilitates transactions between the principal and customers. In cases of delayed payment by customers, the DCA extends short term loans, charging interest as mutually agreed. The DCA raises debit notes for interest payments, subject to TDS. The State Tax, GST Cell opines that no additional amount for loans should be added to the price for GST calculation.

The key issue is whether the interest charged by the DCA on short term loans to customers is exempt from GST under Sl. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The DCA's loan transactions are separate from the supply of goods by the principal, and the interest is considered as consideration for the loan, not for the supply of goods. Section 15(2)(d) of the CGST Act, 2017 specifies that interest for delayed payment of consideration is taxable, but in this case, the interest is towards the loan, not the supply of goods.

Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 exempts services by way of extending loans where the consideration is represented by interest. As the interest charged by the DCA is in consideration of the short term loans provided, it falls under the exemption provided by Sl. No. 27 of the notification. Therefore, the interest charged by M/s. Shreenath Polyplast Pvt. Ltd. on short term loans is exempt from GST as per the ruling.

In conclusion, the Authority for Advance Rulings, Gujarat, ruled that the service provided by M/s. Shreenath Polyplast Pvt. Ltd. in extending short term loans, where the consideration is represented by interest, is covered under Sl. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and is exempt from payment of Goods and Services Tax.