2021 (8) TMI 738 - AAR - GST

Subsidy or not - incentives received under Atma Nirbhar Gujarat Sahay Yojna dated 16.05.2020 declared by the Gujarat Govt. - supply of service under the provisions of Section 7 under CGST Act or not - scope of Sub Section 2 of Section 7 of CGST Act - inclusion of incentive received under said scheme, in the alue of taxable supply or not - whether 2%/4% incentive received from the State Government, which is over and above the 6% interest received by State Government under the said Sahay Yojna, attracts GST? HELD THAT - The applicant Bank has disbursed the loan of ₹ 1 lacs to customers @ 8% interest out of which customer is liable to pay interest @2% and remaining 6% interest amount is borne by the State Government. Further, the applicant received 4% as an incentive on the total loan amount disbursed to the customers, over and above the 6% interest amount paid by the Government. The subject incentive specifically provided to the applicant is for motivation and encouragement for the applicant to undertake this specific scheme. By this incentive, the State Government is incentivising the applicant to undertake this scheme and achieve success, for the incentive is not absolute but relative depending on the performance of the applicant. As the incentive is linked to the Amount of Loan disbursed in rupees, we note that the yardstick for incentivising the applicant is based on applicants willingness and performance to achieve targets, which in subject case is the amounts of loan disbursed, the highest incentive being 4% for more than 100 Crore rupees disbursed and the minimum being 2% for upto 10 crore rupees of loan disbursed. The subsidy is granted in public interest, related with welfare of the public or provided to a person/business by Governments, to rationalise the cost impact directly/indirectly on the public. The said incentive has no such bearing on reducing the interest burden of 2% on the customers of the applicant, but incentivising the applicant for its performance of business in said scheme. The issue is not taxability on 6% interest amount given by Government but on the subject incentive amount given over and above the 6% interest amount to the applicant. Further, on reading the schedule III to the Act, there are no merit to entertain subject matter to be covered at any of the 8 transactions mentioned therein. The subject incentive amount liable to GST. The said Incentive is not subsidy and does not merit exclusion from valuation under section 15(2)(e) CGST Act. The subject supply is covered at section 7(1)(a) CGST Act and not covered at section 7(2) CGST Act.

Summary

Issues Involved:
1. Whether the incentives received under "Atma Nirbhar Gujarat Sahay Yojna" are considered as subsidy and not chargeable to tax.
2. Whether the incentive received under the said scheme could be considered as a supply of service under the provisions of Section 7 of the CGST Act.
3. Whether the incentive received under the said scheme, if considered as a supply, would be covered under Sub Section 2 of Section 7 of the CGST Act.
4. Whether the incentive received under the said scheme could be excluded from the value of taxable supply under clause (e) of Sub Section 2 of Section 15 of the CGST Act, 2017.

Detailed Analysis:

1. Incentives as Subsidy and Taxability:
The applicant argued that the incentive received under "Atma Nirbhar Gujarat Sahay Yojna" should be considered a subsidy and thus not chargeable to tax as per Section 2(31) of the CGST Act. They highlighted that subsidies given by the Central or State Government are not included in the definition of consideration. The applicant cited definitions from dictionaries and legal texts to support their claim that the incentive is a subsidy meant to aid the bank in providing loans at reduced interest rates.

2. Incentives as Supply of Service:
The applicant contended that the incentive received does not fall under the definition of the scope of supply as per Section 7(2) of the CGST Act. They argued that the incentive does not constitute a supply of goods or services and should not be taxed. They also mentioned that the incentive is not covered under the activities or transactions specified in Schedule III of the CGST Act.

3. Coverage under Section 7(2) of CGST Act:
The applicant claimed that the incentive should be treated as an actionable claim, which is neither a supply of goods nor a supply of services as per Schedule III of the CGST Act. They argued that the incentive received by fulfilling the conditions of the scheme creates a beneficial interest recognized by civil courts, thus making it an actionable claim.

4. Exclusion from Value of Taxable Supply:
The applicant submitted that the incentive should be excluded from the value of taxable supply under clause (e) of Sub Section 2 of Section 15 of the CGST Act, 2017. They argued that the incentive is akin to additional interest on the loan amount sanctioned and should be exempt from GST.

Revenue’s Submission:
The Revenue submitted that services of extending deposits, loans, or advances by banks fall within SAC code 997113 and are exempt from GST as per Notification No. 12/2017-CT (Rate). They acknowledged that reimbursement of part interest by the State Government is a subsidy and thus excluded from consideration as per Section 2(31) of the CGST Act. However, they did not address the specific issue of the one-time incentive.

Findings and Ruling:
The Authority clarified that the provisions of the CGST Act and GGST Act are similar and considered all submissions. They noted that the Revenue misconstrued the question and focused on the 6% interest paid by the State Government instead of the one-time incentive. The Authority found that the incentive is provided to motivate and encourage the applicant to undertake the scheme and is based on the performance of loan disbursement. They held that the incentive is a consideration and income for the applicant, not a subsidy. The Authority emphasized that the incentive is not passed on to the customers but benefits the applicant directly. They concluded that the incentive amount is taxable under GST and does not merit exclusion from valuation under Section 15(2)(e) of the CGST Act.

Conclusion:
The Authority ruled that the incentive amount received by the applicant is liable to GST, is not considered a subsidy, and does not qualify for exclusion under Section 15(2)(e) of the CGST Act. The incentive is considered a supply under Section 7(1)(a) and not covered under Section 7(2) of the CGST Act.