AGGREGATE TURNOVER – INTEREST FROM ‘PPF’ TO BE INCLUDED?

[Mr. M. GOVINDARAJAN]

Section 22(1) of the Central Goods and Services Tax Act, 2017 provides that every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds ₹ 20 lakhs and in case of special category States he shall be liable to be registered if his aggregate turnover in a financial year exceeds ₹ 10 lakhs.

To decide whether a supplier is liable to get registered under GST Act it is necessary to consider the aggregate turnover of the said person.

The expression ‘aggregate turnover’ is defined under section 2(6) of the Central Goods and Services Tax Act, 2017 as-

• aggregate value of all taxable supplies (excluding the value of Inward supplies on which tax is payable by a person on reverse charge basis),
• exempt supplies,
• exports of goods or services or both;  and
• inter-State supplies of persons having the same Permanent Account Number, 

to be computed on all India basis,

but excludes central tax, State tax, Union territory tax, integrated tax and cess.

IN RE: SHREE SAWAI MANOHARLAL RATHI [2020 (6) TMI 449 - AUTHORITY FOR ADVANCE RULING, GUJARAT]  Gujarat, the applicant is not running any business and he is an individual.  His main income is rental receipt, bank interest, interest on PPF and interest on personal loans and advances.   He gave the details of receipt on the above heads as below-

• Rent receipts = ₹ 9,84,000/-
• Bank interest = ₹ 3,000/-
• Interest on PPF interest = ₹ 2,76,000/-
• Interest on personal loans and Advances = ₹ 7,49,000/-

The applicant sought for advance rulings on the following questions-

• Whether Interest received in form of PPF would be considered for the purpose of calculating the threshold limit of ₹ 20 lakh for registration under GST Law?
• Whether Interest received on Personal Loans and Advanced to family/friends would be considered for the purpose of calculating the threshold limit of ₹ 20 lakh for registration under GST Law?
• Whether Interest received on Saving Bank Account would be considered for the purpose of calculating the threshold limit of ₹ 20 lakh for registration under GST Law?

The applicant submitted the following before the Authority for Advance Ruling-

• The interest is received on loans and advances, deposits and savings Bank account in his individual name;
• He  is not engaged in any such business and who is not a money lender.
• Interest Receipts is not a Supply and does not attracts GST, as the same is neither ‘In the course of Business’ nor ‘In the furtherance of Business’.
• The definition of ‘Scope of Supply’ given under Section 7 of the CGST Act, 2017, which clearly states that the receipts should be ‘in the course or furtherance of Business’.
•  The receipts from personal loans and advances, deposits and Bank Interest are not covered under ‘Business’ as per the definition of ‘Business’ given under Section 2(17) of the CGST Act, 2017.  
• For the purpose of calculating the threshold limit of ₹ 20 lakh for obtaining registration under GST law, such interest receipts are not required to be aggregated.

The Authority for Advance Ruling analyzed the definitions of ‘aggregate turnover’, ‘exempt supply’ and ‘supply’.  The Authority for Advance Ruling observed that ‘Nil rated supply’ is nowhere defined in GST Law. The basic difference between nil rated and exempt supply is that the tariff is higher than 0% in case of exempt supply. But there is no tax payable due to exemption notification. Whereas in case of NIL rated supply, the tariff is at NIL rate so there is no tax without the exemption notification.

From the analysis of the above definitions the Authority for Advance Ruling came to a conclusion that the following are covered under the expression ‘aggregate turnover’-

• Taxable Supplies;
• Supplies that have a NIL rate of tax;
• Supplies that are wholly exempted from SGST, UTGST, IGST or Cess; and
• Supplies that are not taxable under the Act (alcoholic liquor for human consumption and articles listed in section 9(2) and in Schedule III);
• Export of goods or services or both, including zero-rated supplies.

The Authority for Advance Ruling further analyzed the Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017.  Entry 27(a) of the Notification No. 12/2017 and relates to services by way of extending deposits, loans or advances in so far as the consideration is represented by  way of interest.    The services regarding interest income are covered under the above Notification. Therefore, such services are exempted from payment of GST and the individual is not required to discharge GST on the activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. Therefore, in given case GST is not leviable on Interest Income earned by the Applicant.

The Authority for Advance Ruling further observed that the applicant is an individual with an annual turnover of more than ₹ 20 lakh. Since this income is interest-related, the turnover is exempt from GST. However, the Applicant also supplies services of “Renting of immovable property” along with activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. His turnover from the rent income is ₹ 9.84 Lakh and we know that this transaction (‘renting of immovable property’) is chargeable to GST. However, his taxable turnover is only ₹ 9.84 Lakh. Going by the definition of ‘aggregate turnover’, the Applicant is required to consider the value of both the taxable supply i.e. ‘Renting of immovable property’ and exempted supply of service provided by way of extending deposits, loans or advances for which they earned interest income, to arrive at ‘Aggregate Turnover’ to determine the threshold limit for the purpose of obtaining registration under the GST Act.

The Authority for Advance Ruling concluded that the Applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & Bank Saving accounts and loans and advances given to his family/friends along with the value of the taxable supply i.e. ‘Renting of immovable property’ for the purpose of calculating the threshold limit of ₹ 20 lakh for obtaining registration under GST law.

Analysis by Author

In the view of the Author, the Rulings given by the Authority for Advance Rulings may not be correct. 

• The applicant is an individual and not running any business.
• He only provides his premises for rent and he received the same which is considered to be a supply and it is taxable.
• The applicant himself declared that his other receipts are interest from PPF account, interest from savings banks account and personal loans, advances and deposits which are only in his individual capacity and not related to his main supply ‘ renting of immovable property’.    It is not proved that the same are received in the course of business and furtherance of business.
• The definition of expression ‘aggregate turnover’ is to be interpreted strictly.  There is no ambiguity in this definition.  The said expression does not include-

• Supplies that have a NIL rate of tax;
• Supplies that are not taxable under the Act,

which have been found place in the conclusion of the Authority for Advance Ruling.

• The definition of ‘aggregate turnover’ does not specifically include the supply other than in the course or furtherance of business.

• Section 7(1)(a) of the Act provides that for the purposes of this Act, the expression ‘supply’ includes–

•  all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

• The receipts of the applicant, except ‘renting of immovable property’ are of personal nature and are not in the course or furtherance of business. 
• It is the burden of the revenue to prove that the said receipts by the applicant are in the course or furtherance of business.
• The reasons for including the interest received on PPF, savings bank, personal loan and advances in personal capacity to the relatives, in including the same in computation of ‘aggregate turnover’ are indicated in this order.

The applicant is having ample scope to win his case before the Appellate Authority for Advance Ruling.   The views of experts in this regard are welcome.