2022 (7) TMI 503 - AAR - GST

Levy of GST on interest - credit facility extended against the taxable supply - annual installment with interest - entire interest income on the balance land cost is being recognized in the Financial Year in which the sale agreement is executed - Supply of goods or supply of services - HELD THAT - It is clear that APIIC allots the land to the SC/ST/BC entrepreneurs by collecting 25% of the land cost from the entrepreneurs at the time of allotment of land, while the remaining 75 k of the land cost will be collected from the entrepreneur in 8 equal annual instalments @ 16% p.a rate of interest duly providing 2 years moratorium period. The entire interest income on the balance land cost is being recognized in the Financial Year in which the sale agreement is executed. The applicant sought clarification regarding the taxability of the interest amount receivable on the balance land cost. In the instant case the applicant, APIIC had given a facility to the beneficiaries, by extending the service of fixation of annual instalments with an interest Pi 16 /o p.a for delayed payment of 75% of total consideration over a period of time. In such a case, the interest on the credit facility allowed by the applicant is part of the value of taxable supply and shall be liable to GST.

Summary

Issues:
Taxability of interest amount receivable on annual instalments for land allotted by a corporation to entrepreneurs.

Analysis:
The Authority for Advance Ruling, Andhra Pradesh, addressed the issue of whether the interest amount receivable on annual instalments for land allotted by a corporation to entrepreneurs is liable to GST. The applicant, a corporation, allots land to entrepreneurs, collecting 25% of the land cost upfront and the remaining 75% in 8 annual instalments with interest. The interest income is recognized in the financial year of sale agreement execution. The applicant contended that the interest is taxable under GST at 18% as it does not fall under exempt categories and is not covered by Section 15(2)(d) of the Act, which pertains to supply of goods or services.

Upon examination, the Authority noted that the sale of land is neither a supply of goods nor services as per Schedule III of the Act. However, the agreement between the corporation and beneficiaries constitutes a supply of service under Schedule II, as it involves agreeing to obligations regarding payments and interest. The interest component in the transaction falls under Section 15(2)(d) of the Act, which includes interest for delayed payment as part of taxable supply. Therefore, the interest on annual instalments for land is deemed part of the taxable supply and subject to GST.

During the virtual hearing, the authorized representative reiterated the applicant's stance. The Authority's discussion focused on the nature of the transaction, distinguishing between the sale of land and the contractual obligations related to payments and interest. Considering the legal provisions and the specific circumstances of the case, the Authority ruled that the interest amount receivable on the annual instalments fixed by the corporation is indeed liable to GST. The ruling was made under the provisions of both the Central Goods and Services Tax Act, 2017, and the Andhra Pradesh Goods and Services Tax Act, 2017.