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2024 (8) TMI 234 - AAR - GST


Issues Involved:
1. Taxability of penalties, late fees/penal interest, and fines levied by RBI for contravention or violation of provisions of law under GST.
2. Taxability of penalties for non-performance or under-performance as per contractual agreements by RBI with third-party vendors under GST.

Detailed Analysis:

Issue 1: Taxability of penalties, late fees/penal interest, and fines levied by RBI for contravention or violation of provisions of law under GST

1. Facts and Contentions of the Applicant:
- The Reserve Bank of India (RBI) is a statutory body constituted under the Reserve Bank of India Act, 1934.
- RBI acts as the central bank of India, regulating the banking and financial system, and performing monetary policy functions.
- RBI administers various Acts and levies penalties, late fees, and fines for contraventions or violations of these laws.
- Examples of such penalties include those for non-maintenance of CRR and SLR by banks, late submission fees under FEMA, and penalties for unlawful access of credit information.

2. Applicant's Interpretation of Law:
- RBI argues that such penalties are not taxable under GST as they do not constitute consideration for any supply.
- Reference is made to CBIC Circular No. 178/10/2022-GST dated 03 August 2022, which clarifies that penalties imposed for violation of laws are not consideration for any supply and hence not taxable.
- The penalties are intended to deter violations and maintain discipline, not to tolerate violations.
- RBI also cites FAQs issued by CBIC and judicial pronouncements supporting the non-taxability of such penalties.

3. Submission of the Jurisdictional Officer:
- The officer concurs with RBI's interpretation, citing the same CBIC Circular and concluding that such penalties do not constitute consideration for a supply.

4. Findings and Decision:
- The authority reviewed the CBIC Circular and relevant legal provisions.
- It was concluded that penalties, late fees, and fines levied by RBI for contraventions of laws are not taxable under GST as they do not constitute consideration for any supply.
- Decision: Penalties, late fees, penal interest, and fines levied and collected by RBI for contravention or violation of provisions of law are not taxable under GST.

Issue 2: Taxability of penalties for non-performance or under-performance as per contractual agreements by RBI with third-party vendors under GST

1. Facts and Contentions of the Applicant:
- RBI engages third-party vendors for various services and imposes penalties for non-performance or under-performance as per contractual agreements.
- Example provided includes a contract with M/s Giesecke and Devrient India Pvt Ltd, where penalties are imposed for system downtime beyond permissible limits.

2. Applicant's Interpretation of Law:
- RBI argues that such penalties are akin to liquidated damages and are not taxable under GST.
- Reference is made to CBIC Circular No. 178/10/2022-GST dated 03 August 2022, which clarifies that liquidated damages paid to compensate for loss or damage due to breach of contract do not constitute consideration for a supply.
- RBI also cites judicial pronouncements supporting the non-taxability of such penalties.

3. Submission of the Jurisdictional Officer:
- The officer concurs with RBI's interpretation, citing the same CBIC Circular and concluding that such penalties do not constitute consideration for a supply.

4. Findings and Decision:
- The authority reviewed the CBIC Circular and relevant legal provisions.
- It was concluded that penalties for non-performance or under-performance as per contractual agreements are in the nature of liquidated damages and are not taxable under GST.
- Decision: Penalties for non-performance or under-performance as per contractual agreements by RBI with third-party vendors are not taxable under GST.

Order:
- Question 1: Whether the penalties, late fees/penal interest, fine of the nature, levied and collected by RBI, for contravention or violation of provisions of Law are taxable under GST?
- Answer: No.

- Question 2: Whether the penalty of the nature for non-performance or under-performance as per contractual agreement by RBI with third-party vendors are taxable under GST?
- Answer: No.

 

 

 

 

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