TMI Blog2019 (3) TMI 1008X X X X Extracts X X X X X X X X Extracts X X X X ..... pt from tax in terms of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (Serial Number 27)? 2.1 It was submitted in the application for Advance Ruling that they are Del Credere Agent (herein after referred to as DCA ) appointed by the supplier of goods (herein after referred to as principal ) and has dual role, the first role is to promote the sale and take orders for goods to be supplied by the principal directly and the second role is to guarantee the principal for the payment of goods supplied. If customers fail to make payment, DCA is required to make the payment to the principal. Normally, Principal takes Bank Guarantee (BG) and / or Security Deposit against which principal assigns certain limit to the DCA in their system. Within that limit, DCA is allowed to place orders of the customers. At the end of the month, for the orders booked through such DCA and goods supplied by the principal, DCA gets the commission from principal for which DCA raises invoices on the principal along with GST. 2.2 It was further clarified that the role of the DCA is limited to order booking and ensuring payment to the principal in case of default from the customer. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... materials is not liable to tax in terms of Sr. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. 3.2 It was further submitted that DCA is giving the loan to the buyer and charging the interest thereon from them and accordingly it will be covered under item at serial number 27 of the table attached to the impugned Notification and therefore, no tax would become payable on the amount charged as interest. 3.3 M/s. Shreenath Polyplast Pvt. Ltd. referred to Section 15(2)(d) of the Central Goods and Services Tax Act, 2017 (herein after referred to as the CGST Act, 2017) and submitted that the said provision does not apply to the facts of the present matter. They submitted that in the present case, in the commercial practice as explained earlier, DCA is not supplying any goods to the customer but it is the principal who is directly supplying the goods to the customers. Thus, interest charged by DCA from customers is not for delayed payment of consideration of any underlying supply but said interest is charged towards loan given to the customers and hence such interest will be covered under item 27 of the table attached to the impugned notification. 4. The G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f agent as provided under Section 2(5) of the CGST Act, 2017 and include him only a financial service provider as envisaged in the Notification No. 12/2017-Central Tax (Rate) (Serial No. 27) dated 28.06.2017 is outright erroneous interpretation of the law. 7.2 It is submitted that a DCA is given higher commission for his services vis- -vis the commission received by other agents because of service of credit provided by a DCA as he extends guarantee of the credit to the buyer which has essential component of service in facilitating the supply of goods. Section 15(2)(d) of the CGST Act, 2017 has been referred and it is submitted that the interest charged by the DCA for delayed payment is nothing different and exclusive, but is by reason of and in connection with the transaction of supply of goods, therefore such interest or late fee or penalty for delayed payment to the DCA is in connection with the transaction and by reason of the transaction and cannot be excluded from the value of taxable supply, in simple words, cannot escape taxability. 7.3 It is submitted that the above grounds of appeal are in consonance with the clarification given vide Para 2(iii) of Office Memorandum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exemption to such person exclusively involved in such service i.e. extending deposits, loan or discount will be defeated. 10. In view of the aforesaid grounds of appeal, it is requested to set aside the Advance Ruling No. GUJ/GAAR/R/2018/3 dated 19.02.2018 = 2018 (5) TMI 809 - AUTHORITY FOR ADVANCE RULINGS GUJARAT . 11. M/s. Shreenath Polyplast Pvt. Ltd. (applicant) has filed reply against the aforesaid appeal. 12.1 It is submitted that the provisions of Section 15(2)(d) of the CGST Act, 2017 are already discussed by the AAR in its Order and it has rightly and correctly been held that the interest received by the applicant is a consideration towards loan extended to the customer and such interest is not towards the payment of consideration for supply of goods by the Principal to the customers, which AAR has already observed, is a separate transaction. It is submitted that Section 15(2)(d) provides that the interest or late fee or penalty should flow to the supplier of goods as what is contemplated to be included in the taxable value is interest or late fee or penalty for delayed payment of any consideration for any supply, whereas in this case the interest does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the goods supplied by the principal and therefore, it cannot form part of taxable value in terms of Section 15(2)(d) of the CGST Act, 2017. 12.3 It is submitted that the principal, i.e. supplier is receiving payment in time by this arrangement and thereby there is no delay in payment. It is further submitted that had there been no DCA, and if the customer did not have money to pay to the principal in time, he would have borrowed money from bank and bank would charge interest. The interest charged by the bank could not be considered towards delayed payment and could not be charged to GST by including in the taxable value of supply made by the principal. So is the case in hand. 12.4 It is submitted that the reference to Office Memorandum dated 05.09.2017 issued by the GST Policy Wing (F.No. 349/40/2017-GST Para 2(iii)) for inclusion of interest in taxable value of supply as per section 15(2)(d) is misplaced inasmuch as the said OM refers contract between the broker and client, whereas the broker referred in this OM cannot be equated with DCA. It is further submitted that the content of relevant paragraph placed on record in Review Order (grounds of appeal) is by choose and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card service) is transaction in money is entirely wrong. Further, it was never stated in their application for advance ruling that their transaction is transaction in money only. In fact, applicant stated that transaction between them and customer is separate activity and is service of extending loan, advance and they are charging interest. This interest is subjected to TDS under Income Tax Act also. Therefore, this ground does not hold any water. 12.8 It is also submitted that though the present appeal is filed by the Assistant Commissioner [under Section 100(1) of the CGST Act, 2017], having jurisdiction over the assessee, it is based on the authorization issued by the Principal Commissioner, in exercise of powers conferred under sub-section (2) of Section 107 of the CGST Act, 2017, which is erroneous. It is submitted that such review power under Section 107(2) could be exercised only in cases where the adjudicating authority have passed order and not by Authority for Advance Ruling. Accordingly, the authorization to file appeal against the decision of the AAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, with respect to the plea of applicant to consider the transaction as Revenue Neutral , it is submitted that this plea is not legal and tenable in the eyes of law, as the whole indirect tax administration run on the principle of credit flow and value addition. Such utilization of ITC should not be treated as Revenue Neutral . Further, by the logic of Revenue Neutrality , almost every Business to Business transaction transfer the credit and cannot be taken as revenue neutral as it is against the basic principal of indirect taxation. 17. The applicant M/s. Shreenath Polyplast Pvt. Ltd. also submitted additional submissions, reiterating the submissions already made by them. FINDINGS (As per Ajay Jain) : 18. We have carefully gone through and considered the appeal and written submission filed by the CGST department, written submissions filed by the applicant, submissions made at the time of personal hearing, Advance Ruling given by the AAR and other material available on record. 19.1 The nature of transaction involved in this case, as described by the applicant, may be summed up as follows. The applicant is Del Credere Agent (DCA) appointed by the supplier of goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the DCA to buyers of material is exempt from tax in terms of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (Sr. No. 27). 20.1 As the entire issue in this case is related to the provisions of Section 15(2)(d) of the CGST Act, 2017 and Sr. No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and corresponding provisions / Notification under the Gujarat Goods and Services Tax Act, 2017 (herein after referred to as the GGST Act, 2017 ), it would be useful to reproduce the same. 20.2 The Section 15(2)(d) of the CGST Act, 2017 and the GGST Act, 2017 provides as follows :- 15. Value of taxable supply. - (1) (2) The value of supply shall include - (a) (b) (c) (d) interest or late fee or penalty for delayed payment of any consideration for any supply; and (e) 20.3 Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, provides exemption to supply of various services, as specified in column (3) of the table to the said Notification. Sl. No. 27 of the table to the said Notification provides as follows:- TABLE (1) (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is not in a position to pay to principal on the due date, he approaches DCA to extend short term loan and the loan is extended by the DCA by making payment to the principal on behalf of the customer , the use of the phrase short term loan appears to be misleading inasmuch as even without approach by the customer, the DCA is under obligation to make payment to the principal. Furthermore, it is an admitted fact that the DCA does not extend loan to the buyer, rather the DCA makes payment directly to the principal on behalf of buyer as per agreed terms. In fact, if the DCA is not under obligation to make payment to the principal on failure of making payment by the customer, he is not acting as DCA. 21.4 Thus, the making of payment by the DCA to the principal in case of failure to make payment by the customer is inevitable part of the contract or arrangement of supply of goods through DCA, therefore the interest earned on such activity would be chargeable to GST. 22.1 The issue of applicability of Goods and Services Tax on interest earned by a broker on temporary funding extended to clients towards pay-in obligation has been clarified vide para 2(iii) of Office Memorandum F.N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the transactions through DCA in the present case. 23.1 The DCA makes payment to the principal in respect of goods supplied to the customer through him (DCA) in case of failure of making payment by the customer. Once the DCA makes the payment of goods to the principal on behalf of the customer, the DCA enters into the shoes of the principal and becomes entitled to recover the amount from the customer. Therefore, the submission of the applicant that the interest charged by DCA from customers is not for delayed payment of consideration of any underlying supply, is not found to be correct. 23.2 The obligation of the DCA to make payment to the principal on failure of the customer to make payment on due date has been termed by the applicant as short term loan to the customer and it is contended that the interest charged toward such loan given to the customer will be exempted under S. No. 27 of Notification No., 12/2017-Central Tax (Rate). Though such an argument appears attractive, on close scrutiny, it becomes apparent that there is not much merit in this. In case of direct transaction between supplier and customer, where the customer does not make payment on due date bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h S. Lakhani Shri Pravin Dhandhariya, CA Present for the Department: Dr. Prasad Varwantkar, Assistant Commissioner, CGST, Division VII (Satellite), Commissionerate - Ahmedabad South M/s. Shreenath Polyplast Pvt. Ltd. raised the following questions for advance ruling Whether an amount charged as interest on transaction based short term loan given by the Del Credere Agent (DCA) to buyers of material is exempt from tax in terms of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (Serial Number 27) ? 2.1 It was submitted in the application for Advance Ruling that they are Del Credere Agent (herein after referred to as DCA ) appointed by the supplier of goods (herein after referred to as principal ) and has dual role, the first role is to promote the sale and take orders for goods to be supplied by the principal directly and the second role is to guarantee the principal for the payment of goods supplied. If customers fail to make payment, DCA is required to make the payment to the principal. Normally, Principal takes Bank Guarantee (BG) and / or Security Deposit against which principal assigns certain limit to the DCA in their system. Within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending bills are paid by the customer. By following above process, since customer is able to arrange finance by taking short term transaction loan from the DCA, the principal gets the payment and customer gets the un-interrupted supplies. 2.6 In respect of above commercial practice, the aforesaid question was raised for advance ruling. 3.1 It was submitted that the amount charged by DCA as interest from the buyer of the materials is not liable to tax in terms of Sr. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. 3.2 It was further submitted that DCA is giving the loan to the buyer and charging the interest thereon from them and accordingly it will be covered under item at serial number 27 of the table attached to the impugned Notification and therefore, no tax would become payable on the amount charged as interest. 3.3 M/s. Shreenath Polyplast Pvt. Ltd. referred to Section 15(2)(d) of the Central Goods and Services Tax Act, 2017 (herein after referred to as the CGST Act, 2017) and submitted that the said provision does not apply to the facts of the present matter. They submitted that in the present case, in the commercial practice as explained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a guarantor of credit extended to the buyer for the payment of the (invoice) value by the buyer to the principal. It is submitted that the DCA functions as a guarantor of credit, whether the credit is referred to by names like funding / loan/ money, the terminology should not confuse the credit / fund extending to the buyers to pay the principal. It is submitted that a DCA is an agent and to exclude him from the definition of agent as provided under Section 2(5) of the CGST Act, 2017 and include him only a financial service provider as envisaged in the Notification No. 12/2017-Central Tax (Rate) (Serial No. 27) dated 28.06.2017 is outright erroneous interpretation of the law. 7.2 It is submitted that a DCA is given higher commission for his services vis- -vis the commission received by other agents because of service of credit provided by a DCA as he extends guarantee of the credit to the buyer which has essential component of service in facilitating the supply of goods. Section 15(2)(d) of the CGST Act, 2017 has been referred and it is submitted that the interest charged by the DCA for delayed payment is nothing different and exclusive, but is by reason of and in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (other than interest involved in credit card service), (b) inter-se sale or purchase of foreign currency amongst bank or authorized dealers of foreign exchange or amongst bank and such dealer, and not applicable to the agent like in this case i.e. DCA who is not involved in money to money transaction but also involved in supply of service or goods on behalf of the principal (supplier), otherwise purpose of the Government to extend the exemption to such person exclusively involved in such service i.e. extending deposits, loan or discount will be defeated. 10. In view of the aforesaid grounds of appeal, it is requested to set aside Advance Ruling No. GUJ/GAAR/R/2018/3 dated 19.02.2018 = 2018 (5) TMI 809 - AUTHORITY FOR ADVANCE RULINGS GUJARAT . 11. M/s. Shreenath Polyplast Pvt. Ltd. (applicant) has filed reply against the aforesaid appeal. 12.1 It is submitted that the provisions of Section 15(2)(d) of the CGST Act, 2017 are already discussed by the AAR in its Order and it has rightly and correctly been held that the interest received by the applicant is a consideration towards loan extended to the customer and such interest is not towards the payment of consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods or services or both so supplied. Therefore, to be included as a supplier , an agent should be acting as such or, in other words, acting as a supplier. DCA do not act as supplier at any point in time and hence cannot be treated as supplier under the GST law. It being so, the section 15(2)(d) has no relevance as the interest so charged by the DCA for his separate service provided to the customer is not towards delayed payment for the goods supplied by the principal and therefore, it cannot form part of taxable value in terms of Section 15(2)(d) of the CGST Act, 2017. 12.3 It is submitted that the principal, i.e. supplier is receiving payment in time by this arrangement and thereby there is no delay in payment. It is further submitted that had there been no DCA, and if the customer did not have money to pay to the principal in time, he would have borrowed money from bank and bank would charge interest. The interest charged by the bank could not be considered towards delayed payment and could not be charged to GST by including in the taxable value of supply made by the principal. So is the case in hand. 12.4 It is submitted that the reference to Office Memorandum dated 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion only in money. It is submitted that the transaction only in money is not defined in the CGST Act, 2017, however, recourse can be taken to Service Tax Education Guide wherein the transaction in money is explained while clarifying explanation to definition of service as provided under Section 65B(44) of the Finance Act, 1994. It is further submitted that the ground that the services by 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 service) is transaction in money is entirely wrong. Further, it was never stated in their application for advance ruling that their transaction is transaction in money only. In fact, applicant stated that transaction between them and customer is separate activity and is service of extending loan, advance and they are charging interest. This interest is subjected to TDS under Income Tax Act also. Therefore, this ground does not hold any water. 12.8 It is also submitted that though the present appeal is filed by the Assistant Commissioner [under Section 100(1) of the CGST Act, 2017], having jurisdiction over the assessee, it is ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad South, who is also a concerned officer, jurisdictional officer of Ahmedabad South have issued Review Order No. 01/2018-19 under sub-section (1) of Section 100 of the CGST Act, 2017 and accordingly, the Assistant Commissioner, CGST, Division VII (Satellite), Ahmedabad being a concerned officer has filed the appeal to Appellate Authority in Form ARA-03 under Rule 106(2) of CGST Rules, 2017, which is proper and legal. 16.4 Further, with respect to the plea of applicant to consider the transaction as Revenue Neutral , it is submitted that this plea is not legal and tenable in the eyes of law, as the whole indirect tax administration run on the principle of credit flow and value addition. Such utilization of ITC should not be treated as Revenue Neutral . Further, by the logic of Revenue Neutrality , almost every Business to Business transaction transfer the credit and cannot be taken as revenue neutral as it is against the basic principal of indirect taxation. 17. The applicant M/s. Shreenath Polyplast Pvt. Ltd. also submitted additional submissions, reiterating the submissions already made by them. FINDINGS (As per Dr. P.D.Vaghela) : In Appeal of Assistant Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Contract Act, 1872 is required to be referred. As per section 182 of the Indian Contract Act, 1872, an agent is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the principal . As delineated in the definition, an agent can be appointed for performing any act on the behalf of the principal which may or may not have the potential for representation on behalf of the principal. So, the crucial element here is the representative character of the agent which enables him to carry out activities on behalf of the principal. 20.1 The term agent has been defined under sub-section (5) of section 2 of the CGST Act as follows: agent means a person, including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another. 20.2 The key elementas emerges from the definition is that the supply or receipt of the goods or services has to be undertaken by the agent on behalf of the principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agent has the authority to pass or receive the title of goods on behalf of the principal. 20.6 In present case, DCA is not involved in supply of goods on behalf of the principal. As already stated, DCA has dual role of supplying services to the principal to promote sale and supplying services to the buyer (recipient) by extending loans or advances wherein the consideration is represented by way of interest. So far as supplying services to the principal to promote sale is concerned, DCA receives commission from principal for which he raises invoices along with GST. So far as supplying services to the buyer (recipient) by extending loans or advances wherein the consideration is represented by way of interest is concerned, it is purely money transaction between DCA and buyer (recipient). 20.7 Thus, transactions between DCA and buyers (recipient) are not supply of goods but supply of services by way of extending loans or advances i.e. transaction in money. 21. The second objection raised by the appellant is that the AAR has not taken into account the provisions of Section 15(2)(d) of the CGST Act, 2017. Section 15 (2) (d) of the CGST Act, 2017 has been referred and it is su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (b) supply of service from DCA (loan giver) to buyer (recipient) by way of extending loan to buyer (recipient) with interest agreed between them. 24. The third objection raised by the appellant is that the grounds of appeal are in consonance with the clarification given vide Para 2 (iii) of Office Memorandum dated 05.09.2017 issued by the GST Policy Wing (F.No.349/40/2017-GST). 24.1 On this issue, M/s. Shreenath Polyplast Pvt. Ltd. has submitted that the reference to Office Memorandum dated 05.09.2017 issued by the GST Policy Wing (F.No. 349/40/2017-GST Para 2(iii) for inclusion of interest in taxable value of supply as per section 15(2)(d) is misplaced inasmuch as the said OM refers contract between the broker and client, whereas the broker referred in this OM cannot be equated with DCA. It is further submitted that the content of relevant paragraph placed on record in Review Order (grounds of appeal) is by choose and pick manner as the last line of the said paragraph has not been considered. 25.1 In the said OM, issue pertaining to applicability of GST on interest earned by a broker on temporary funding extended to clients towards pay in obligations was raised. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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