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2020 (7) TMI 447 - AAR - GSTSupply or not - interest/penalty collected for delay in payment of monthly subscription by the members - classification and rate of duty applicable - whether there is any Tax Liability on such additional amount (termed as Interest) charged on delayed payment? - HELD THAT:- The applicant is chit company engaged in the activity of distribution of prize money to its members and the additional amount is being collected in the form of interest for delay payment from the members as consideration as a fixed percentage of transaction value. Having regard to the trade parlance it is also clear that chit company gives a reasonable time to its customer to make the payment however if the customer do not make the payment within the stipulated time then an additional amount is being charged and it may be termed as different names i.e. Interest, Late fee or Penalty - The additional amount being charged on delayed payment termed as Interest, late fee or penalty on the amount delayed in specified time cannot be bifurcated as such additional payment do not have its own classification. It is taking colour from original supply i.e., supply of financial and related services. The entry No 27 of Notification no 12 / 2017 of CGST dated 28th June 2017 exempt the services by the way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services). Further, interest is also defined vide Section No.2 z(k) as means ‘interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised’. It is further clarified in circular No.102/21/2019-GST dated 28th June, 2019 that “any service fee/charge or any other charges that are levied by M/s. ABC Ltd in respect of the transaction relating to extending deposits, loans or advances does not qualify to be interest as defined in notification 12/2017-Central Tax (Rate) dated 28th June, 2017, and accordingly will not be exempt”. The additional amount being charged in delay of payment by whatever name called should be classified as principal supply and the classification of the same cannot differ from the original supply. Hence the additional amount charged on delayed payment shall be taxed as per original supply i.e. supply of financial and related services.
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