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2020 (9) TMI 1238 - AAAR - GSTSupply or not - interest/penalty collected for delay in payment of monthly subscription by the members - classification and rate of duty applicable on the said supply - HELD THAT:- Apart from other services, one of the services rendered in relation to a chit is the collection of instalments from subscribers who defaulted in payment of the same. In addition, the foreman is duty bound to collect interest on such defaulted instalments, which the law under Section 21(1)(c) of the Chit Fund Act, 1982 entitles him to retain. It is pertinent to add that a Chit Fund business survives on the collection of instalments from all subscribers to a chit, which is then given to the Prized Subscriber who succeeds by way of lots or auction, and is repeated month after month till the conclusion of the chit. Any failure in payment of instalment by a subscriber would hamper the foreman in making the payment to the Prized Subscriber and jeopardize the entire flow of the chit. As foreman of the chit, it is his duty to collect and pass on the moneys to the Prized Subscriber. This service of ensuring that all instalments are received from all subscribers to a chit is the service rendered by the foreman in relation to the chit. As per Section 2(d). Under Section 22(1) of the Chit Fund Act, cited above, the law casts a duty upon the foreman to pay the “Prize amount” to the “Prized Subscriber” as detailed in the said Section 22. The foreman can comply with this provision only if the “chit amount” has been paid by all the subscribers, to constitute the “Prize amount”, which, as defined in Section 2(m) of the Chit Fund Act, is primarily the “chit amount” as defined under Section 2(d). It is extremely clear that unless all instalments of a chit are received by the foreman, the payment of the prize amount would be hampered. This clearly brings out the service that the foreman renders in ensuring that all the instalments of all subscribers is collected - the collection of delayed/defaulted instalments and penal interest thereon is purely a service rendered in relation to a chit and cannot be given any other connotation. The collection of defaulted instalments and interest thereon by the foreman is a supply of service in relation to the chit and squarely falls under the HSN classification of Heading 9971 as services provided by a foreman of a chit fund in relation to chit under Notification No.11/2017-Central Tax(Rate) Dated 28.06.2017 / Notification No.8/2017Integrated Tax(Rate) dated 28-6-2017 as amended from time to time. Exemption from GST or not - HELD THAT:- In a Chit floated by a Chit Fund company, there is no concept of extending deposits, loans or advances. On the other hand, it is the subscribers who come together to subscribe towards the prized amount which is aggregated and taken by each member on the basis of lots or auction - the interest realized from the defaulting subscribers is different with that of the interest against loan or advance by the Bankers and other Financial Institutions. Therefore, there is no exemption available under Notification No.12/2017-Central Tax (Rate) as claimed by the appellant. HSN Rate - HELD THAT:- The collection of defaulted / delayed instalments is a service performed by the foreman in relation to a chit. The appellant has been attempting to divert attention from this fact by bringing in the concept of actionable claims, etc. As seen from the law on Chits cited, it is clearly evident that it is the job of the foreman to collect defaulted instalments for which the penal interest of 18% as per law is collected by him and he is further permitted to retain the same by law. Hence, the interest so collected for the service rendered in relation to a chit, will be liable to GST at the rates applicable under HSN Heading 9971, (Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017) as it is earned in connection with the supply of service by the foreman to the chit.
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