2019 (8) TMI 1221 - AAR - GST

Providing services of financial assistance in the form of Loan - related party transaction or not - providing financial assistance in the form of loan to various Government of Gujarat entities - whether such Gujarat Stated owned entities and GSFS become related persons in GST? - HELD THAT - The relationship between Gujarat State Financial Services Ltd. and Government or Government entities is that of related person as defined under Section 15 of Central Goods and Services Tax Act 2017 and Gujarat Goods and Services Tax Act 2017. Levy of GST - notional processing fees/ notional any other charges, provided by way of loans to Gujarat state owned entities - Applicant is not charging any processing fees/ any other charges, for providing to Government of Gujarat State owned entities, and interest being charged as full consideration. HELD THAT - The applicant makes the supply of loan and for which consideration is only interest. As stated by the applicant there is no other consideration so even if the service is provided to related party the applicant will be eligible for exemption under sub entry (a) of entry 27 of Notification No. 12/2017-Central Tax (Rate) under CGST Act 2017 and corresponding State notification No. 12/2017- State Tax (Rate) under GGST Act 2017. The said notification neither talks about related unrelated party nor about notional consideration. Therefore the question of charging GST on notional consideration does not arise in this case. If they actually charge processing fee or any other charges, other than interest, then applicant will be liable for GST.

Summary

Issues:
1. Whether all Gujarat State owned entities and GSFS become related persons in GST?
2. Whether GST will be chargeable on notional processing fees provided by way of loans to Gujarat state owned entities?

Issue 1:
The case involves M/s. Gujarat State Financial Services Ltd (GSFS), a subsidiary of the Government of Gujarat, providing financial assistance in the form of loans to various state-owned entities. The question is whether all Gujarat State owned entities and GSFS become related persons in GST. The applicant argued that as per the definition of related persons in the CGST Act, GSFS and other Gujarat State Government entities are related persons due to the State Government holding more than 25% of outstanding voting stock or shares of both entities. The Authority agreed with the applicant's interpretation, ruling that the relationship between GSFS and Government entities qualifies as that of related persons under the GST Acts.

Issue 2:
The second issue pertains to whether GST will be chargeable on notional processing fees provided by way of loans to Gujarat state owned entities. The applicant clarified that they do not charge any processing fees or other charges for providing financial assistance to Government entities, with interest being the sole consideration. The Authority examined the relevant notifications and found that services by way of extending deposits, loans, or advances, where the consideration is represented by interest, are exempt from GST. Since the applicant only charges interest and no additional fees, they fall under the exemption provided by the notifications. Therefore, the Authority ruled that GST will not be chargeable on notional processing fees or any other charges provided by GSFS in the form of loans to Gujarat state owned entities.

In conclusion, the Authority for Advance Ruling, Gujarat, addressed the issues raised by M/s. Gujarat State Financial Services Ltd regarding related party status and GST applicability on notional processing fees. The judgment clarified the relationship between GSFS and Government entities as related persons under the GST Acts. Additionally, it determined that GST would not be chargeable on notional processing fees provided by GSFS to Gujarat state owned entities, given that the consideration is solely based on interest in compliance with the relevant notifications exempting such services from GST.