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2019 (8) TMI 116 - AAAR - GSTNature of activity - supply of service or not - bouncing/dishonoring of cheques - Levy of GST - Bounce Charges collected by the Appellant - tolerate an act or situation of the default by the borrowers - scope of supply - entry 5 (e) of the Schedule II to the CGST Act, 2017 - HELD THAT:- The default in payment of EMIs as also the bouncing or dishonor of the cheque are hereby deemed to be defaults under the provisions of the agreement entered between the appellant and their customers. On any default or breach of the agreement, the remedies available with the appellant are either to recall loan or cancellation of agreement, or to initiate legal proceedings under the Negotiable Instruments Act or under the Payments and Settlement Act, or taking possession of the product, etc. However, the appellant instead of taking recourse to the remedial provisions in the agreement is tolerating the act or the situation of bounce / dishonor of the cheque / ECS / NACH, tendered by the customers for repayment of EMIs, by imposing / recovering certain amount as ‘bounce charges’. Hence, such an activity of tolerance of situation of bounce / dishonor of cheque is adequately covered by entry 5 (e) of Schedule ll. Appellant is entitled to recover the bounce charges from such defaulting borrowers. Thus, from the language of the above mentioned clause related to bounce charges, it is adequately clear that there is mutual agreement between the Appellant and the borrower that whenever this event of default occurs, the Appellant can tolerate this event against some fixed agreed amount. Thus, here it can be said that the Appellant has tolerated an act or situation of default by the borrowers, for which they are recovering some amount in the name of the bounce charges, wherever the repayment instruments, discussed above, have been dishonored. Hence, such activity of tolerance is against consideration. We do not find any scope and requirement as such to discuss the meaning of consideration in such cases, as there is no mention of the term “consideration” anywhere in the description provided in the entry 5 (e) of the Schedule Il to the CGST Act, 2017. The bounce charges are recovered by the appellant for tolerating the act of delay and it is nothing but consideration. It is clear from the meaning of the “consideration” provided under Section 2(31) that it includes the impugned charges - Here, the bounce charges recovered by the Appellant from their borrower can be construed as the monetary value of the act of the tolerance from the side of Appellant in the case of default by the borrower. Thus, this argument of the Appellant is not tenable. Benefit of Notification No. 12/2017-C.T. (Rate) dated 28.06.2017 - HELD THAT:- The bounce charges collected by the Appellant is clearly not on account interest for the delayed payment of the consideration for their supply, but for dishonor of the repayment instruments, such as bouncing of the Cheques issued by the borrowers or the failure of the ECS for non-availability of the sufficient fund in the borrower’s account. Further, the Appellant is recovering separate amount at the fixed rate of interest under the head of “default interest”, as quoted in the loan agreement, on the delayed payment of the EMI by the borrowers - the “bounce charges” in the present case are not covered in the interest meant for the purpose of the exemption and thereby not entitled for the exemption as claimed by the appellant. Thus, the bounce charges recovered by the Appellant from their borrowers on account of the default of the borrowers, where their repayment instruments get dishonored due to lack of the sufficient fund in their bank account, will attract GST.
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