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2018 (12) TMI 1154 - AAR - GSTLevy of GST - penalty/ liquidated damages - supply of service or not - Whether the Bounce Charges collected by the Applicant should be treated as a supply under the GST regime? - Held that:- The receipt of bounce charges would be receipt of amounts for tolerating the act of their customers for having bounced the cheque or any other mode of payment. In view thereof, the same would definitely be a ‘supply’ under the GST Act and therefore, there arises an occasion to levy tax under the GST Act on the impugned transactions - the receipt of bounce charges on dishonor of cheques, etc, would be receipt of amounts for tolerating the act of their customers for having dishonored or where the client could not honour the said cheques and the same, would definitely be a ‘supply’ under the GST Act and therefore, there clearly arises an occasion to levy tax under the GST Act on the impugned transactions. There is clearly an agreement that the applicant, in the case of bouncing of cheques, etc by their customer, the applicant would tolerate such act of default or a situation and the defaulting party i.e their customer was required to compensate the applicant by way of payment of extra amounts in addition to principal and interest as per the terms and conditions of the Agreement. It is also very clear as to the amount or quantum which is consideration in the form of bounce charges to be received by the applicant if these, are suitable compensation only for tolerating the act of default or situation of default by their customers and they have clearly foreseen that such situation can be there and have, in their agreement, clearly devised a suitable mechanism for receipt of charges for the same and it is not additional interest as claimed by the applicant. In the present case, there is a clear understanding or agreement between the parties in the present case to foresee and tolerate an act or a situation of default on the part of the client for a monetary consideration which is actually a consideration received by the applicant, though in the agreement they may be giving this consideration, other names such as ‘penal charges’, penalty, Bounce Charges, etc, as thought proper by them, but these different nomenclatures in their Agreement would in no way change the actual nature of monetary “‘consideration” which would clearly be taxable for the supply of services as per Sr.No. 5(e) of Sch. II of the CGST Act, 2018. The exemption for financial transactions under GST laws is only in respect of the interest/discount earned or paid for loans, deposits or advances. If the transaction, as in the subject case deviates from the above, i.e. the consideration not being an interest or discount, the exemption is not available - Dishonour of cheques i.e. a mode of repayment to the applicant by their customers, is an act which results in delay of receipt of repayments to the applicant. This delay is an act done by their customers which is tolerated by the applicant because inspite of such dishonour the applicant proposes to continue the agreement with the defaulting party. The recovery of bounce charges is made in view of toleration of the act of the client by the applicant and therefore construes as ‘supply’ as per as per Sr. No. 5(e) of Sch. II of the CGST Act and is therefore taxable under the GST Act. Ruling:- The Bounce Charges collected by the Applicant should be treated as a supply under the GST regime.
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