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TMI Blog2019 (8) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... -rata basis from due date till date of actual payment. In clause 3 (iv) of the agreement also the appellant mentioned that he is entitled to recover the penalty as above in the event of default and delay in payment of EMI. Thus, it is evident that although the agreement between appellant and customer has defined separately the terms Default Interest , Penal Charges and Bounce Charges , but they are exclusive and what appellant recovered or recovers from his customer is only the penalty for delayed payment of EMI under the term Penal Charges . The penalty recovered by the appellant does not get covered by the term penal interest as used by the appellant in his grounds of appeal, as per se it is not interest but it is penalty / penal charges. What is exempted vide N/N. 12/2017-Central Tax (Rate) dated 28.06.2017 is the interest as construed under definition provided in the said notification. By abiding to the correct interpretation of term interest as discussed herein above, the penal charges / penalty being not construed as interest, will not qualify for such exemption. The provisions of clause (d) of sub-section (2) of Section 15 of the CGST Act would apply in these cases where int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the MGST Act. The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as "the CGST Act and MGST Act"] by Bajaj Finance Limited(herein after referred to as the "Appellant") against the Advance Ruling No. GST-ARA-22/2018-19/B-85 dated 06.08.2018. = 2018 (11) TMI 884 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA BRIEF FACTS OF THE CASE A. The Appellant is a non-banking financial company and is inter alia engaged in providing various types of loans to the customers such as auto loans, loans against the property, personal loans, consumer durable goods loans, etc. B. The Appellant, inter alia, enters into agreements with borrowers/customers for providing loans to them. The loan agreements provide for repayment of the outstanding dues/ Equated Monthly Installments (EMI) through cheque/ Electronic Clearing System CECS')/ National Automated Clearing House ('NACH') or any other electronic or clearing mandate. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt caution, the Appellant had filed an application for Advance Ruling before the Maharashtra Authority for Advance Ruling (hereinafter referred to the 'Ld. AAR') on 09.05.2018, on the following questions: "i) Whether the Penal Interest is to be treated as interest for the purpose of exemption under Sr. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, Sr. No. 27 of Maharashtra State Notification No. 12/2017-State Tax (Rate) dated 29.06.2017, and Sr. No. 28 of Notification No. 9/2017-lntegrated Tax (Rate) dated 28.06.2017? ii) If the answer to the above is negative, whether the activity of collecting penal interest by the Appellant would amount to a taxable supply under the GST regime?" H. The AAR passed the Order No. GST-ARA-21/2018-19/B-24 dated 06.08.2018 = 2018 (12) TMI 1154 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA (hereinafter referred to as 'impugned order'), holding that the penal interest charged by the Appellant amounts to supply of services under Sr. No. 5(e) of Schedule II to the CGST Act, and is therefore liable to GST. I. Aggrieved by the impugned order dated 06.08.2018, the Appellant has filed this appeal, inter alia, on the following gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord the reasons for acceptance or rejection of every submission of the Appellant, in order to establish the linkage between the facts, and grant sanctity to the order. In this regard, reliance is placed on the following judgements of the Apex Court: * State of Orissa v. Dhaniram Luhar, (2004) 5 SCC 568 = 2004 (2) TMI 687 - SUPREME COURT * Oryx Fisheries Pvt. Ltd. v. Union of India, 2011 (266) E.LT. 422 (S.C.) = 2010 (10) TMI 660 - SUPREME COURT * Asstt. Commr., Commercial Tax Department v. Shukla & Brothers, 2010-TIOL-131-SC-CT = 2010 (4) TMI 139 - SUPREME COURT * Commissioner of CGST & Central Excise v. M/s. Development Credit Bank Ltd., 2018-TlOL-2313-HC-MUM-CX 4. It is an undisputed fact that the Appellant is an NBFC which is engaged in providing various types of loans to the customers such as auto loans, loan against property, personal loan, consumer durable goods loan, etc. Further, it is also undisputed that interest on loans have been kept outside the levy of GST, under Serial No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The relevant portion of the said Exemption Notification is reproduced herein below: Sl.No. Chapter, Section, Head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n return for the use of the borrowed money. According to Stroud's Judicial Dictionary of Words And Phrases (5th edition) interest means, inter alia, compensation paid by the borrower to the lender for deprivation of the use of his money. In Secretary, Irrigation Deptt. v. G.C. Roy [1992] 1 SCC 508 = 1991 (12) TMI 268 - SUPREME COURT, the Constitution Bench opined that a person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages.... this is the principles of section 34. In Dr. Shamlal Narula v. CIT [1964] 7 SCR 668 = 1964 (4) TMI 10 - SUPREME COURT, this Court held that interest is paid for the deprivation of the use of the money. The essence of interest in the opinion of Lord Wright, in Riches v. Westminster Bank Ltd. [1947] 1 All ER 469, 472, is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had the use of the money, or, conversely, the loss he suffered because he had not that use. The general idea is that he is entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid, interest includes any amount, by whatsoever name called, in excess of the "principal paid or payable to a money-lender in consideration of or otherwise in respect of a loan. The word 'interest' has a basic meaning of advantage or profit. When used with reference to, a loan, interest means the profit or advantage of the creditor which he gets by giving to another the use of his money. If the contract stipulates that for the use of the creditor's money a certain profit shall be payable to the creditor, that profit is interest, by whatever name it is called, or if it is called by no name at all. Applying Act 4 of 1938 to the present contract it is clear that the principal is ₹ 2500. The only payment was an open payment of ₹ 150 made on 23rd July 1931. The whole of the interest as on 1st October 1937 is cancelled and the creditor is entitled to ₹ 2350 with interest at 61/4 per cent. per annum from 1st October 1937. The appellants are entitled to their costs here and in the Court below." Similarly, in the case of V. Srinivasachariar v. Conjeevaram Hodgsonpet Dharamarakshaka Nidhi Limited, 1940 AIR (Mad) 937 = 1940 (8) TMI 32 - MADRAS HIGH COU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C, which describes interest as the time value of money. The relevant portion of the same is reproduced herein below: "4.14.2 What are the "services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount"? The negative list entry covers any such service wherein moneys due are allowed to be used or retained on payment of interest or on a discount. The words used are 'deposits, loans or advances' and have to be taken in the generic sense. They would cover any facility by which an amount of money is lent or allowed to be used or retained on payment of what is commonly called the time value of money which could be in the form of an interest or a discount. This entry would not cover investments by way of equity or any other manner where the investor is entitled to a share of profit. Illustrations of such services are - * ……….. * Providing a loan or overdraft facility or a credit limit facility in consideration for payment of interest. * Mortgages or loans with a collateral security to the extent that the consideration for advancing such loans or advances are represented by way of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for use of money for that specified period of time. Similarly, when the customer delays the payment of instalment of loan beyond the due date as provided in the agreement, the Appellant levies additional interest (which is termed as Penal Interest) for use of the money beyond the stipulated period of time by the borrowers. Therefore, penal interest is nothing but interest only. 17. It is further submitted that there is no distinction in law for 'principal interest' and penal interest'. The definition of the term 'interest' given in clause (zk) of para 2 of the Exemption Notification covers interest payable in any manner, and therefore, even the penal interest is covered within the scope of 'interest' for the purposes of the GST law, and hence, the same shall be exempt from GST. 18. However, the Ld. AAR in the impugned AAR order has held that the penal interest is not interest on loans. In this regard, the Ld. AAR has recorded a finding that the penal interest has been termed as 'penalty' in the loan agreements entered into by the Appellant. 19. It is submitted in this regard that the additional interest for the period of default has been variedly termed in the loan agreements as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penal interest cannot be construed as additional interest. In this regard, the Ld. AAR recorded a finding that normally, interest is calculated on the entire tenure of loan given and not on monthly basis, therefore, it cannot be said that the penal interest is for the period of delay not included in the EMI/instalment amount. The Ld. AAR further recorded a finding that rate of interest of loan and the penal interest is different, and in general course of business, the interest charges are fixed at a certain rate, however, the penal interest has been defined in the loan agreement to be "not exceeding 3% per month". The Ld. AAR further recorded a finding that the penal interest which is termed as additional interest is also levied on the interest component of the EMI. 24. The above findings are based on an incorrect understanding of the facts of the present case. In this regard, it is relevant to note that the Ld. AAR has not disputed that the interest which is factored in EMI fits into the meaning and scope of interest of loans, therefore, the rate at which such interest is payable is not relevant to determine the nature of such transaction. The Ld. AAR has failed to understand th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of such EMI. Further, such interest for the period beyond the due date is not factored in the EMI and is therefore charged separately as penal interest. These facts clearly establish that the penal interest charged by the Appellant is nothing but an additional interest for the period of delay in making payment of the EMI. Further, the Ld. AAR himself has admitted that penal interest is levied on the interest component of the EMI. This also substantiates that the defaulted EMI (principal and interest) virtually amounts to a new loan, in as much as penal interest is charged on the defaulted EMI (which is inclusive of interest) for the period of default. Hence, the penal interest shall be treated as interest only, and therefore, the above mentioned findings of the Ld. AAR are erroneous and bad in law. 27. In view of the above discussions, it is submitted that Penal Interest collected by the Appellant is additional interest only, therefore, any treatment given to the main consideration, i.e. interest on loans, shall also be equally applicable to the penal interest. Hence, the penal interest shall be exempted from payment of GST under the Exemption Notification. 28. In this r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CGST Act is applicable for determination of value of 'any supply', both for taxable as well as exempt supply. Therefore, even if the main supply is exempt by way of any exemption notification, still, the provisions of Section 15(2) shall be applicable to determine the value of such exempt supply. It would be incorrect to say that the provisions of Section 15(2) are not applicable for exempt supplies, in as much as, the valuation of exempt supplies is equally important as that of taxable supplies, as the quantum of reversal of input tax credit under Section 17(2) of the CGST Act is determined on the basis of the value of exempt supplies. Hence, the provisions of Section 15(2) are applicable to determine the value of exempt supplies as well. 33. In view of Section 15(2)(d) of the Act, the penal interest levied for delayed payment of loan dues/EMl, being an interest/penalty for delayed payment of consideration, is to be included in the value of loans, which is nothing but interest only. Therefore, the penal interest so levied by the Appellant would be treated at par with interest, and any treatment given to the main consideration (i.e. interest) shall also be equally applicable to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary. In other words, any activity undertaken without consideration, except those activities specified in Schedule l, shall not be treated as supply', and accordingly, will not be leviable to GST. 38. It is submitted that the present case of penal interest collected by the Appellant is neither a case of import, nor, is covered in the list of activities specified in Schedule l. Therefore, clause (b) and clause (c) of Section 7(1) of the CGST Act are not applicable in the present case. Further, as submitted above, clause (d) is only for the purpose of determination whether a particular activity is a supply of goods or supply of services. Therefore, it is relevant to first determine whether a particular activity is covered within the scope of clause (a), (b) or (c) of Section 7(1) of the CGST Act. In any case, the penal interest collected by the Appellant is also not covered under clause (d), as explained in detail in the submissions made below. 39. In this background, it is necessary to understand whether the penal interest collected by the Appellant constitute a supply for consideration under clause (a) of Section 7(1). In this regard, it is relevant to refer to the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for between the parties, and is essential reason for a party entering into a contract. Further, the consideration for an activity must be at the desire of the other person. 45. However, damages for the breach of contract cannot be treated as a consideration for any activity. It is submitted that upon breach of contract, the aggrieved party is entitled to claim compensation for breach of contract. Such compensation is a legal and statutory right provided under Section 73 and 74 of the Indian Contract Act, 1872, and even without any specific clause in the contract for the damages or compensation payable upon the breach of contract, the party suffering such breach has the statutory right to claim damages or compensation from the party who has broken the contract. 46. The provisions of Section 73 and 74 are extracted herein below for reference: "73. Compensation for loss or damage caused by breach of contract. - When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covers the case of penal interest, wherein, higher rate of interest is charged from the customers from the date of default, so as to deter the customers from making such default in future. Therefore, looking from this angle, the penal interest charged by the Appellant may be treated as penalty for the breach of the contract. In any case, if it is held to be not penalty, then, the same shall be treated as liquidated damages. 52. Therefore, in view of the above discussions, it is submitted that the penal interest charged in the present case shall be treated either as penalty or liquidated damages. 53. In fact, the Ld. AAR has also accepted the submissions that the penal interest is in the nature of penalty. Therefore, in this background, it is relevant to understand whether the amounts recovered in the nature of damages or penalty amounts to supply. The same has been explained in the submissions made herein below. 54. It is submitted that payment of liquidated damages or penalty is not a consideration for any supply, as they are merely damages for the breach of contract. It is submitted in this regard that the stipulation for payment of damages upon breach of contract does not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned AAR order has held that the default committed by the borrowers by way of delay in payment of EMI/ installment is being tolerated by the Appellant and is therefore covered under clause (e) of Entry 5 of Schedule II to the CGST Act. 60. For the sake of reference, the above said entry is reproduced herein below: "5. Supply of services The following Shall be treated as supply of services, namely: (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; and" 61. It is submitted that the Ld. AAR has misinterpreted the above clause to allege that any act of tolerating would fall under the ambit of the said clause. The correct interpretation of the law would be to read the above said clause as under: (i) agreeing to the obligation to refrain from an act; (ii) agreeing to the obligation to tolerate an act or situation; (iii) agreeing to the obligation to do an act. 62. It is submitted that the expression "agreeing to the obligation" is a prefix to all the three entries, viz. 'to refrain from an act', 'to tolerate an act or a situation', and 'to do an act'. Therefore, to attract the above said clause, there must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it implies a right in another person to which it is correlated, and it restricts the freedom of the obligee with reference to definite acts and forbearances; but in order to be enforceable, it must be an obligation recognised by law; and not merely a moral, social or religious one. An obligation may not be a legal one, where it cannot be reduced to a money value; legal obligation includes every duty enforceable by law so that when a legal duty is imposed on the person in respect to another, the other is invested with a corresponding legal right. This definition is used in its wider juristic sense as covering duties arising ex contractu or ex delicto, and may cover any other enforceable duty under any statute." * Black's Law Dictionary: "Obligation, (n.) 1.A legal or moral duty to do or not do something. The word has many wide and varied meanings. It may refer to anything that a person is bound to do or forbear from doing, whether the duty is imposed by law, contract, promise, social relations, courtesy, kindness, or morality. 2. A formal, binding agreement or acknowledgement of a liability to pay a certain amount or to do a certain thing for a particular person or set of pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or delayed payment of loan installments by the borrowers, the mere recovery of penal interest for breach of the contract does not constitute a supply of service by the Appellant to the borrower. 71. It is therefore submitted that the findings of the Ld. AAR that the Appellant has tolerated the act of default of the borrower which falls under clause 5(e) of Schedule Il, is based on an incorrect interpretation of the law, without considering the meaning of the expression 'agreeing to an obligation' used in the said provision. 72. Hence, the impugned AAR order holding that the penal interest is consideration for tolerating by the Appellant is bad in law and is liable to be set aside. Even internationally, the damages for breach of contract are not taxed. 73. It is further submitted that internationally, the damages received by way of compensation for termination or breach of a contract are not treated as a supply and therefore not subjected to GST/VAT levy. 74. In Australian Law, the GST is levied on supply under 'A New Tax System (Goods and Services Tax) Act, 1999'. The term 'supply' is defined under Section 9(10) of the said Act. Clause (g) of sub-section (2) is pari materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave rise to the lessor's right to terminate. Thus, in the above Ruling issued under Australian GST, it has been clarified that mere payment of an amount under a damages claim is not a 'supply' and hence, GST is not payable on such supplies. 78. Further, reference is made to GST Determination No. 2005/6 which has been issued to answer the question as to whether a club, association, trade union, society or cooperative (referred to as "association" in the Determination) makes a supply when it imposes a non-statutory fine or penalty on a member for a breach of the association's membership rules. The said GSTD clarifies that there is no supply made by an association when it imposes a fine or penalty on its member for a breach of its membership rules, and the payment of the fine or penalty is therefore not a consideration for a supply and hence not leviable to GST. It has been clarified in the above GSTD that if the true nature of fine or penalty is a punishment and/or to act as a deterrent, it does not accord with that nature to suggest that there is a supply to the member in return for its payment. 79. Reference is also made to the New Zealand case S65 (1996) 17 NZTC 7408, wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inuing with the main supply of service/goods by terming the same as towards tolerating the acts of the defaulting party. 83. Thus, liquidated damages/penalty are merely for making good the loss suffered by a contracting party due to breach of terms of the contract by other contracting party. There is no additional benefit given under the main contract of supply of service, in return for the liquidated damages/penalty. 84. The ratio laid down in the above discussed rulings shall be equally applicable for determining the taxability of penal interest in the present case, as the provisions of Entry 5(e) of Schedule II to the CGST Act are similar to the GST/VAT laws of other countries, and the scope of 'supply' in such laws is wide enough to cover an obligation to tolerate an act or situation. 85. Hence, by applying the above rulings, it can be concluded that the penal interest collected by the Appellant in the present case, being penalty/liquidated damages for breach of contract, are not taxable, as the same does not amount to consideration for any supply. Personal Hearing 86. A personal Hearing in the matter was conducted on 07.03.2019, wherein Shri Sandeep Sachdeva, Advocate, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EMI and delayed the payment of EMI, is for tolerating any act as envisaged under the entry 5 (e) of the schedule II to the CGST Act, 2017, or is in the nature of additional interest, and therefore, covered under the entry 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and not subjected to GST levy. 89. To decide this issue, we have closely examined the copies of the agreements placed before us and we find certain clauses are necessary in order to determine the nature of charges collected by appellant for delay in payment of EMI. The relevant extract of clauses of a sample auto loan agreement in respect of penal charges is reproduced below for ease of reference: 1. Definitions and abbreviations: e. "Default Interest" means interest levied by BFL from the due date till payment on happening of any event of Default as set out in clause 3 (iv) of this agreement. q. "Penal Charges" mean and include over-due char es on non-payment of installment on the due date. r. ……………………………………" 3. The Borrower agrees and confirms that: (iv) BFL is entitled to levy penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The above said entry 27 of Notification is reproduced herein below: Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition (1) (2) (3) (4) (5) 27 Heading 9971 Services by way of- (a) 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), Nil Nil In view of the above, it is evident that services of providing loans are exempt, in so far as the consideration of the said services is represented by way of interest. The term 'interest' has been defined under clause (zk) of para 2 of the above said Notification, which reads as under: "(zk) "interest" 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 charges in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised" 91. We have observed that when the term "means" is used while defining an expression, it gives a restrictive meaning to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation defines interest only to mean interest in respect of any moneys borrowed or debt incurred but does not include any other charges in respect of the moneys borrowed or debt incurred. Hence, we cannot give it an extended meaning as contended by the appellant. 93. A perusal of the method of calculation furnished by appellant shows that it is calculated on the entire due amount of EMI, including interest already included therein EMI. But, as claimed the interest cannot be levied on interest, but only penalty can be levied on the interest not paid within the due date prescribed for it. The real substance of the transaction is that the payment of penalty / penal charges is on account of the failure of the customer to adhere to the conditions of repayment of EMI as stipulated in the Agreement. Thus, the nomenclature provided in the agreement is not the only deciding factor to construe it as penalty / penal charges, but the nature of it as defined in agreement is important- the nature being that the appellant is entitled to recover and the borrower agreed to pay it. One of the important test to determine whether the levy is penal in nature is to see whether it is for the non-complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the appellant, the true nature of the issue has to be seen now in the light of the entry 5 (e) of the schedule II to the CGST Act, 2017. Therefore, we will go through the entry 5 (e) of the schedule II to the CGST Act, 2017, which has been reproduced herein under: "(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;" In the instant case, the Appellant enters into loan agreement with the borrower. On perusal of the sample agreement, it is observed that it contains specific clauses namely 'Events of Defaults' and 'Remedies in case of Defaults'. The relevant portion of these clauses from sample auto loan agreement are reproduced herein below: 25. Events of Defaults: A default shall be deemed to have been committed if the borrower does not comply with its obligation covenants contained in this agreement, and also if: a. Any default shall have occurred in payment of Monthly Installment or any part thereof and / or in payment of any amount due and payable to BFL in terms of this agreement. 26. Remedies for Default: The following are without prejudice to the other as also to other rights and remedies un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no separate agreement, we are of the view that though there is no separate agreement between the Appellant and the borrower, for the said act of tolerance of the delay by the borrower, there is clear provision laid out at entry 3 (a) of the above discussed agreement, in this regard, in the loan agreement itself which clearly proposes the remedy available for the default by the borrower. Thus, this argument of the Appellant is devoid of my rationale or merit, and hence is not worth considering. 98. The appellant further contended that it is relevant to first determine whether a particular activity of the appellant is covered within the scope of clause (a), (b) or (c) of Section 7(1) of the CGST Act as the Clause (d)only provide to treat said activity as either supply of goods or as the case may be supply of services. The appellant has made this submission with reference to the provisions of scope of supply, the appellant submitted that the clause (a), (b) and (c) of section 7 of CGST Act define the scope of supply, whereas, clause (d) classifies certain activities specified in Schedule II as supply of goods or supply of services. The said section is reproduced herein below: "Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paras the appellant received the consideration and tolerated the act or situation of delay in payment of EMI. In view of these facts the harmonious and purposive interpretation of the above referred Clauses under subsection (1) of Section 7 of CGST Act is that they are dependent upon the other and conjoint reading of Clause (d) and (a) of the section 7 (1) remove all clouts of doubt and make it absolute clear that such an act of tolerating delay in payment of EMI is nothing but supply as mandated under Section 7 of the CGST Act. 101. The Appellant has repeatedly submitted that the penal interest recovered by them from their borrower cannot be considered as consideration, as the same is not received by them for supplying any specific service to the borrowers. It is rather in nature of damage or compensation for the loss incurred to them on account of the delay by the borrower and the borrower is under the contractual obligation to pay the said amount. As regards this contention of the Appellant, it is opined that as long as the Appellant is tolerating the delay in payment by the borrower, this act of tolerance would be construed as supply of service in terms of the provision of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant in this regard is that it shall be read as under: (i) agreeing to the obligation to refrain from an act; (ii) agreeing to the obligation to tolerate an act or situation; (iii) agreeing to the obligation to do an act. Being, the expression "agreeing to the obligation" is a prefix to all the three entries. 103. We believe that the here the appellant has tried to play with words and coined a new theory of interpretation the law. In common parlance the prefix is a group of letters placed before the root or stem of a word or part of a word that is placed at the beginning of another word to change its meaning. By this logic prefix cannot be said as group of words as stated in submission by appellant. However, the construction of the clause 5 (e) of the Schedule II is very clear in regards to separate expressions mentioned therein and separated by semicolon. It is evident from the construction of the said entry that it contains three expressions and that all three expressions namely "agreeing to the obligation to refrain from an act; or to tolerate an act or a situation: or to do an act" are separated with semicolon followed by word "or". It shows that semicolon and "or" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry separate meaning. Thus, the words mentioned in first expression are separate and have limited applicability to the extent of first expression only. The second expression "to tolerate an act or situation' is clearly distinct and separate. In view of this, the group of words "agreeing to the obligation" from first expression of clause 5 (e) mandating for agreement and obligation are not applicable to the expression "to tolerate an act or situation". Hence, it is concluded that the very activity of tolerating act or situation of delay in payment of EMI is covered under clause 5 (e) of the Schedule II without such obligation as contended by the appellant. 105. In view of the above observations, we are of the opinion that the penal charges / penalty recovered by the Appellant from their borrowers on account of the delay in payment of EMI by borrowers are adequately covered under clause 5 (e) of the Schedule II of the CGST Act, and will attract GST. Thus, we pass the following order: ORDER We do not find any reason to interfere with the ruling pronounced by the Authority for Advance ruling vide their order No. GST-ARA-22/2018-19/B-85 dated 06.08.2018 = 2018 (11) TMI 884 - AUTHORIT ..... 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