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2020 (7) TMI 447 - AAR - GSTSupply or not - interest/penalty collected for delay in payment of monthly subscription by the members - classification and rate of duty applicable - whether there is any Tax Liability on such additional amount (termed as Interest) charged on delayed payment? - HELD THAT - The applicant is chit company engaged in the activity of distribution of prize money to its members and the additional amount is being collected in the form of interest for delay payment from the members as consideration as a fixed percentage of transaction value. Having regard to the trade parlance it is also clear that chit company gives a reasonable time to its customer to make the payment however if the customer do not make the payment within the stipulated time then an additional amount is being charged and it may be termed as different names i.e. Interest, Late fee or Penalty - The additional amount being charged on delayed payment termed as Interest, late fee or penalty on the amount delayed in specified time cannot be bifurcated as such additional payment do not have its own classification. It is taking colour from original supply i.e., supply of financial and related services. The entry No 27 of Notification no 12 / 2017 of CGST dated 28th June 2017 exempt the services by the 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). Further, interest is also defined vide Section No.2 z(k) as means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised . It is further clarified in circular No.102/21/2019-GST dated 28th June, 2019 that any service fee/charge or any other charges that are levied by M/s. ABC Ltd in respect of the transaction relating to extending deposits, loans or advances does not qualify to be interest as defined in notification 12/2017-Central Tax (Rate) dated 28th June, 2017, and accordingly will not be exempt . The additional amount being charged in delay of payment by whatever name called should be classified as principal supply and the classification of the same cannot differ from the original supply. Hence the additional amount charged on delayed payment shall be taxed as per original supply i.e. supply of financial and related services.
Issues Involved:
1. Whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST. 2. If the said interest/penalty is a supply, what is the classification and rate of duty applicable on the said supply. Issue 1: Whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST. The applicant, engaged in conducting chit auctions, charges a foreman commission of 5% on the prize money and pays GST at 12% on this commission. The issue arises when members delay their subscription payments, and the applicant charges an interest/penalty for such delays. The applicant argues that this interest/penalty should not be considered a supply under GST, citing Schedule III to the APGST Act, 2017, which defines actionable claims as neither supply of goods nor services. They also reference Notification No.11/2017-CT (Rate) and Circular No.102/21/2019-GST, which exempt interest on deposits from GST. However, the authority observes that Section 15(2)(d) of the GST Act includes interest or penalty for delayed payment of any consideration as part of the value of supply. Thus, such interest or penalties should be added to the transaction value and taxed at the same rate as the original supply. The authority further clarifies that the additional amount charged for delayed payments is in the nature of a penalty, not interest, and hence does not qualify for the exemption under entry no 27 of Notification No.12/2017. Issue 2: If the said interest/penalty is a supply, what is the classification and rate of duty applicable on the said supply. The authority concludes that the additional amount charged for delayed payments should be classified under the principal supply, which is financial and related services. According to Section 8 of the GST Act, composite supplies are classified based on the principal supply. Therefore, the interest/penalty charged takes the classification of the original supply, which is financial and related services under SAC code 9971. The applicable GST rate for this classification is 12%, as per Notification No. 8/2017-Integrated Tax (Rate) dated 28th June 2017. Ruling: 1. The interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST. 2. The interest/penalty is classified under SI. No 15 of Heading 9971 Financial and related services, with GST applicable at 12%.
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