Interest to be considered in Aggregate Turnover?

[Kushal Mishra]

I think this could be question of many and many of us might have taken a simple stand GST is not applicable on Interest received on Fixed Deposits, Interest on PPF or Interest on Savings Banks therefore let’s not consider it while calculating aggregate turnover under GST Act. Let us consider the various scenarios where this Interest Could play important role in decision making while enacting various provisions of Goods and Service Tax Act.

First of all, interest will come into picture while ascertaining the facts whether we should consider it in aggregate turnover while taking registration under the Act. Secondly a daunting question can be whether to consider this Interest element while calculating aggregate turnover for Audit applicability.

Now, it’s the time to analyse various facts related to this question.

View 1

• One view based on definition of “aggregate turnover” that it should be included, lets us analyse in detail.

Aggregate definition says –

“means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.”

Contention could be since aggregate turnover includes aggregate value of exempt supplies also and Notification no 12/2017 exempts Interest it should be included in the turnover.

Thus, the different kinds of supplies covered under the “aggregate turnover” are:

1. Taxable Supplies;
2. Supplies that have a NIL rate of tax;
3. Supplies that are wholly exempted from SGST, UTGST, IGST or Cess; and
4. Supplies that are not taxable under the Act (alcoholic liquor for human consumption and articles listed in section 9(2) and in Schedule III);
5. Export of goods or services or both, including zero-rated supplies.

“Exempt Supply” means supply of any goods or services or both which attracts nil rated of tax or which may be wholly exempt under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes Non- Taxable supply.”

Notification no 12/2017 under Heading 9971 Services by way of-

‘(a) 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);”

• Above view is also supported by AAR Gujarat in “In Re Shree Sawai Manoharlal Rathi”, where AAR decided on question

“Whether interest received on deposit in Public Provident Fund (PPF), Personal Loans 86 Advances to family/friends and deposit in Saving Bank Accounts, would be considered for the purpose of calculating the threshold limit of ₹ 20.00 Lakh for registration under GST Law?”

1. AAR referred to definition of aggregate turnover, and also decided to look in supply definition for determining whether or not a transaction falls under the meaning of supply, is important to decide GST’s applicability.
2. Supply includes sale, transfer, exchange, barter, license, rental, lease and disposal. If a person undertakes either of these transactions during the course or furtherance of business for consideration, it will be covered under the meaning of Supply under GST.
3. Reference of Notification no. 12/2017 also taken and at the fag end it was decided that

“The services regarding interest income are covered under the above Notification. Therefore, such services are exempted from payment of GST and the individual is not required to discharge GST on the activity of providing services by way of extending deposits, loans or advances where the consideration is represented by way of interest. Therefore, in given case GST is not leviable on Interest Income earned by the Applicant.”

We conclude that the Applicant is required to aggregate the value of exempted interest income earned by way of extending deposits in PPF & Bank Saving accounts and loans and advances given to his family/friends along with the value of the taxable supply.

View 2

This view is against the tide of including the exempt supply in the aggregate turnover. Take away in this thought is for taxing anything in GST we must bring it into ambit of supply or ambit of schedule I & II where activities referred therein is compulsorily tagged as supply either of goods or services or even made without consideration.

1. Lest not discuss first whether earning interest is goods or service as per GST Law, because primarily a transaction must first fit into supply then further bifurcation into goods or service is needed. Let us then get into “Supply” the expression “supply” includes––

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

None of the 8 different expression of supply mentioned in the definition is defined under the GST Acts.

Sr. no.	Expression	Definition in allied laws	Impact on inclusion of interest in it
1	SALE	According to section 54 of Transfer of Property Act 1882 sale is defined as – "Sale" is a transfer of ownership in exchange for a price paid or promised or part-paid and part- promise.” As per Sale of Goods Act, 1930 A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.	While earning interest ownership of amount invested in FDs, PPFs, or Money in Savings bank account is not transferred.   Essential characteristics of sale should be transfer of ownership.
2	TRANSFER	the act of giving over right, title, or interest in property to another person or other persons.	Interest is not earned by transferring the right or title of money to the investing authorities so investment can be termed as transfer.
3	BARTER	exchange (goods or services) for other goods or services without using money	There is question of barter in Interest as interest is always represented by money.
4	EXCHANGE	an act of giving one thing and receiving another (especially of the same kind) in return.	There is no exchange in earning as amount invested today will be returned on expiry of the terms of investment.
5	LICENCE	a permit from an authority to own or use something, do a particular thing, or carry on a trade	Keeping money in FDs, PPFs can’t also be covered as giving licence and interest as licence fees as amount kept in various investment avenues are not owned by them but owned by the person investing the same.
6	RENTAL	a return made by a tenant or occupant of real property to the owner for possession and use thereof especially: a sum of money agreed upon between a landlord and tenant for the use of real property	For earning interest amount is invested in various investment avenues, keeping amount in various scheme and getting interest in return can’t be treated as rent as rent is primarily related to immovable property.
7	LEASE	a contract by which one party conveys land, property, services, etc. to another for a specified time, usually in return for a periodic payment.	Lease also related to the goods as money is not goods, here also Interest earned can’t be covered.
8	DISPOSAL	the action or process of getting rid of something	Money is kept for a specific period with the intention to earn money in return which can be called as Interest, Money is never disposed to earn money as Money invested to earn Interest is always returnable on expiry.

In commercial parlance investing money in fixed deposit is termed as depositing money. Deposit means “A deposit is a financial term that means money held at a bank. A deposit is a transaction involving a transfer of money to another party for safekeeping. However, a deposit can refer to a portion of money used as security or collateral for the delivery of a good”. In literal sense deposit is not covered as a supply in GST. Even schedule II or III does not cover this transaction.

2. Supply also has two other elements such as

(a) Supply is done for a consideration;

(b) Supply is done in course of furtherance of business.

Now both, the element again needs to be grilled thoroughly, though one can term Interest as a consideration of keeping deposit but later element fails as there could be no furtherance of business present in the transaction where a person keeps deposit to earn interest and he has no business at all.

3. Another dent in view 1 is that definition of Goods as per section 2(52) says “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply;

Since goods specifically excludes money it can’t be termed as goods also. Money is also defined u/s 2(75)

“money” means the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any other instrument recognised by the Reserve Bank of India when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value;

4. Now, let’s see definition of services also

“services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

Service also specifically excludes anything other than money and securities.

5. Lastly, but most importantly I wish to ask now, how a government then is exempting something which is not coming to the tax net at all. How an exemption notification is exempting “extending deposits where consideration is represented by way of Interest” when deposit itself is not covered under the definition of supply.

Government should come up to end this debate also which has been created by AAR Gujarat by considering things which has never should have been a part of turnover by literal interpretation of the available facts and assumptions. Views of expert is invited on the topics discussed herein because due to current prevailing outlook by AAR many people would become liable for registration who all are just earning Interest income along with small component of taxable income like Rent from property.

Disclaimer

View 2 is strictly my personal opinion. Above discussion cannot be considered as our professional or legal advice. Readers shall consider legal provisions or take legal advice from experts before taking action on it.