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2022 (10) TMI 1217 - AUTHORITY FOR ADVANCE RULING, PUNJABLevy of GST - prepayment premium to be charged by PFC, New Delhi for prepayment of loans - HELD THAT:- The Central Board of Indirect Taxes and Customs (CBIC) has issued two Circulars - one Circular No. 102/21/2019-GST dated 28.06.2019 clarifying the “issue of applicability of additional/penal interest” and other Circular No. 178/10/2022-GST dated 03.08.2022 regarding 'GST applicability of liquidation damages, compensation and penalty arising out of breach of contract or other provisions of law”. The Circular No. 102/21/2019-GST dated 28.06.2019 clarifies doubts regarding admissibility of GST on additional/penal interest on the overdue loan i.e. whether it would be exempt from GST in terms of SI. No. 27 of notification No. 12/2017-Ccntral Tax (Rate) dated 28th June 2017 or such penal interest would be treated as consideration for liquidated damages [amounting to a separate taxable supply of services under GST covered under entry 5(e) of Schedule II of the Central Goods and Services Tax Act, 2017. On the other hand, the Circular No. 102/21/2019-GST dated 28.06.2019 in para 7.1.6. has analysed the situation where some banks charge pre-payment penalty if the borrower wishes to repay the loan before the maturity of the loan period and clarified that, such amounts paid for acceptance of late payment, early termination of lease or for pre-payment of loan or the amounts forfeited on cancellation of service by the customer as contemplated by the contract as part of commercial terms agreed to by the parties, constitute consideration for the supply of a facility, namely, of acceptance of late payment, early termination of a lease agreement, of prepayment of loan. Therefore, such payments, even though they may be referred to as fine or penalty, are actually payments that amount to consideration for supply, and are subject to GST, in cases where such supply is taxable. In the present case of the applicant the applicant has simply stated that the PFC has raised the demand of prepayment premium of Rs. 16,85,71,429/-. It is not clear as to whether the prepayment premium includes “additional/penal interest” or “pre-payment penalty”. As the “additional/penal interest” is in the nature of Interest whereas the “prepayment penalty” is in the nature of fine/penalty - in case the consideration is represented by penal interest for prepayment of loan amount the same shall be exempted from payment of GST in terms of SI. No. 27 of notification No. 12/2017-Central Tax (Rate) dated the 28.06.2017. Hence, it can be seen that, in both the conditions i.e. whether the prepayment premium includes “additional/penal interest or pre payment penalty”, there shall not be any GST on the prepayment premium to charged by PFC, New Delhi for pre-payment of loan under CGST Act, 2017.
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