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2018 (9) TMI 1332 - AAR - GSTTaxable Supply - Borrowing Cost - Whether Consideration represented by way of Borrowing Cost received from members to whom loan was sanctioned amounts to taxable supply? Ruling - In Service Charge or any other type of liability loan or any other borrowings vide Sl. No. 27 of N/N. 12/2017 is not exempt - resultantly these services are liable to GST.
ISSUES PRESENTED and CONSIDERED
The core legal question considered by the Authority for Advance Ruling (AAR), Bihar, was whether the consideration represented by way of Borrowing Cost received from members to whom loans were sanctioned amounts to a taxable supply under the Goods and Services Tax (GST) framework. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The legal framework primarily involves the Central Goods and Services Tax Act, 2017, and the Bihar Goods and Services Tax Act, 2017. Specifically, Notification No. 12/2017-Central Tax (Rate) provides exemptions for certain services from GST. The notification's Entry 27 exempts services by way of extending deposits, loans, or advances insofar as the consideration is represented by way of interest or discount, excluding interest involved in credit card services. Court's interpretation and reasoning: The AAR examined the definition of "interest" as provided in the notification, which states that interest means interest payable in any manner in respect of any moneys borrowed or debt incurred but excludes any service fee or other charge in respect of moneys borrowed or debt incurred. The AAR interpreted that while interest on loans is exempt from GST, service charges or other fees are not covered by this exemption. Key evidence and findings: The applicant, a cooperative credit society, argued that the service charge labeled as "Borrowing Cost" is akin to interest and should be exempt from GST. The society's Bye Laws specify that no interest shall be levied on loans and advances to members, but service charges may be applied. The AAR found that the service charge is distinct from interest and thus does not qualify for the exemption. Application of law to facts: The AAR applied the legal definition of interest and the exemption criteria from the notification to the facts presented by the cooperative society. Since the society charges a service fee labeled as "Borrowing Cost," which is not categorized as interest, the AAR determined that such charges are not exempt from GST. Treatment of competing arguments: The applicant contended that the Borrowing Cost is operationally similar to interest and should be treated as such for GST purposes. However, the AAR emphasized the distinction made in the notification between interest and other charges, concluding that the exemption applies strictly to interest and not to service fees or other charges. Conclusions: The AAR concluded that the service charge or Borrowing Cost received by the cooperative society from its members does not qualify for GST exemption under Entry 27 of Notification No. 12/2017. Therefore, such charges are subject to GST. SIGNIFICANT HOLDINGS The AAR held that: "Service charge or other charges in consideration of loans or advances provided do not fall under the exemption described in Entry 27 of Notification No. 12/2017-Central Tax (Rate)." This establishes the principle that service charges distinct from interest are taxable under GST. The final determination on the issue was that the Borrowing Cost charged by the cooperative society is subject to GST, as it does not meet the criteria for exemption under the specified notification.
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