TMI Blog2019 (7) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... s agreement to pay any further amount beyond the amount calculated as per the Rate of Interest per Annum . Hence, the stand of the applicant that the interest subvention amount given by MB India to DFSI is a part of the consideration for the transaction between DFSI and buyer is not correct as the buyer is under no obligation to pay this amount equivalent to the interest subvention to DFS as per the terms of the agreement between FSI and the buyer. In the instant case, there is an MOU / agreement between DFSI and MB India for an amount determined by the agreement interest subvention amount for each loan taken by buyer of MB India s vehicles. This amount is part of the consideration in this transaction and as per the definition in Section 2(31); this is the amount payable by MB India to DFSI and receivable by DFSI from MB India which is recorded as such in the audited financials of DFSI. As DFSI and MB India are related parties, the value of this supply may be different from the transaction value here. This agreement between DFSI and MB India is for the furtherance of the business of lending of DFSI as they are the preferred financiers of MB India s vehicles. Customers buying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter called as Applicant or DFSI) is registered in GST vide GSTIN 33AADCD6300J1Z1. They have stated that they are registered with Central Bank of India as a non-banking financial institution engaged in the activities of Leasing and Finance which includes operating lease of passenger vehicle and financing of commercial and passenger vehicles to end customers. DFSI also does dealership related financial services like inventory financing for Daimler franchised dealers. The Applicant has sought Advance ruling on the following question Whether the interest subvention income received by Daimler Financial Services India Private Limited (DFSI) from Mercedes-Benz India Private Limited (MB India) to reduce the effective interest rate to the final customer is chargeable to GST? The Applicant has submitted the copy of application in Form GST ARA-01 and also submitted a copy of Challan evidencing payment of application fees of ₹ 5,000/each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017. 2.1 The statement of relevant facts submitted by the applicant is given verbatim below: Mercedes Benz (MB) is engaged in manufacture and sale of passenger cars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of finance provided by the applicant to customers. This should not change only because interest was received from a person other than to whom the financing is made. Recognition of income by the applicant is done over the tenure of the loan provided to the customer and the definition of interest uses the phrase payable in any manner , meaning it can be paid over a period of time. This is permitted in Ind-AS notified under Companies, Act, 2013. MB India withholds income tax under Section 194A of Income Tax Act, 1951 as interest other than interest on securities. 3.1 The Authorized Representative of the Applicant was heard in the matter on 19.11.2018. They stated that as per the MOU between DFSI and MB India, DFSI charges a lower interest to the customer of MB India. The difference interest amount for each transaction is paid to DFSI by MB India and is received upfront by DFSI who account the amount over the course of the loan in their books. They provided Case laws to clarify the definition of interest and that subsidy given as offset of loss to creditor by third party will also qualify as interest. They also stated that in the consideration of the supply between DF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an outcome of providing loan to the customer. While the income is received from MB India, consideration can flow from anybody. Even though the payment for the said income is received upfront, it is amortized over the tenure of the loan. Further the definition of interest uses the term payable in any manner . While effecting the payment to DFSI, MB India deducts TDS u/s 194A of the Income Tax Act 1961- TDS on interest other than interest on securities. Loan agreements with customers also mention the applicable interest rate, the interest subsidy from MB India and the net interest rate payable by the customer. In Commissioner of Income Tax vs. Vijaya Bank 1989 175 ITR 611 = 1988 (7) TMI 26 - KARNATAKA HIGH COURT , the Hon ble High Court Of Karnataka held that The subsidy is made to offset a part of the loss incurred by charging a lower rate of interest and hence the payment made by the RBI to the assesse is interest. Consideration can flow from a person other than a borrower. In Pitchayya vs. Venkata Ranga Rao AIR 1944 Mad 243 = 1943 (10) TMI 18 - MADRAS HIGH COURT , it was held that if the contract stipulates that for the use of the cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Description Debit Credit Nature of Account 802010 Subsidy Income - Ctrl XXX Liability (to be taken to income over the period of contract) 110030 Subsidy Inc- OL XXX Income (portion of amount amortized from the liability in 802010) 3.3 The applicant was extended a final hearing on 25.02.2019. They appeared before the authority for ruling and stated that interest subvention is nothing but consideration for the loan given to customer, only that some portion of interest is being paid by MB India.; Consideration can flow from third party as per various case laws submitted by them.; this amount qualifies as interest per definition in the notification 12/2017, CGST ACT 2017.; DFSI is a related party to MB India, both have same holding company.; Hence, DFSI does business only with customers buying MB or Daimler Vehicles.; Customers of MB India can get finance from anyone, but only DFSI gives this interest subvention.; The full amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support service under SAC 9985999 under Other Support Service @ 18%. Section 15 states that the value of taxable supply includes subsidies directly linked to the price and that the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. Interest subvention is an interest subsidy and hence chargeable to GST. DFSI is also showing this as income in their financials under the head other Income . 4.1 We have carefully considered the various submissions of DFSI. It is seen that DFSI is a Non-Banking Financial Institution engaged in the activities of Leasing and Finance which includes operating lease of passenger vehicle and financing of commercial and passenger vehicles to end customers. MB India is engaged in manufacture and sale of passenger cars under the brand Mercedes - Benz vehicles and has extensive network of authorized dealerships engaged in sale of MB cars all over India. Customers who purchase MB India cars from authorized dealers may require financing, DFSI acts as the financier and provides loan to customers. It is seen from the MOU dt 25.05.2016 between DFSI and MB India which was renewed till 31.12.2018 that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for this additional subvention. In the invoice raised by DFSI on MB India, the description is Manufacturer Subsidy Claim for the month of March 2018 with SAC 997159 at 18% GST. The breakup of this invoice provided by DFSI to MB India includes customer contract number, Chassis number; customer name and amount. 4.2 It is seen from the sample customer agreement that it is an agreement termed as Mercedes-Benz Financial between DFSI and the buyer of the vehicle which is manufactured by MB India or Daimler India Commercial Vehicles Pvt Ltd. The interest subsidy is being mentioned as: Applicable Fixed Interest Rate Gross ------------% pa Less: Interest subsidy from MB India-----------% pa. Net Applicable Fixed Interest Rate ----------------%pa. In the sample brochures given to prospective customers by dealers of MB India, it is seen that the finance is offered in the name of Mercedes- Benz Financial . 4.3 It is seen from the audited profit and loss account of DFSI for 2017-18 and the applicant s letter dt 30.11.2018 the amount received from MB India based on invoice raised by DFSI is shown under Revenue from Operations as Subsidy income . In the audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is a supply of credit-granting service from DFSI to the buyer of vehicle as per the agreement between both. Section 15 of the CGST Act states 15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. Section 2 of CGST Act states 2 (31) consideration in relation to the supply of goods or services or both includes- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; In the instant case of the agreement titled Mercedes-Benz Financial , the rate of interest for this loan is specified in Annexure I to this agreement. The methodology of arriving at this rate of interest is given in the Annexure itself as the Net Applicable Fixed Interest Rate after deducting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edes- Benz Vehicle on a non-exclusive basis under the brand name Mercedes-Benz Financials at maximum 100 bps above Competitive Interest Rate (CIR). To enable DFSI to provide the competitive rates, MB India will, subvent the interest to be charged to the Final Customer. For this DFSI is obligated to provide better customer luxury experience, structured insurance products offerings with claims processing within minimum turnaround time, tailor made products, quick loan approvals, maintain customer relation etc. to the buyers of MB India s vehicles. AS seen in the invoice and stated in the application, MB India pays the total amount of the interest subsidy once the Mercedes-Benz Financial is signed between DFSI and the buyer based on the loan amount in that. The invoice is raised based on each of the buyer who has taken the Mercedes-Benz Financial and the details of the Chassis number and customer name are given to MB India along with the Invoice. DFSI is showing this amount received from MB India as Revenue from Operations in the audited financials though the same may be amortized and taken into their books. In this transaction between DFSI and MB India, it is seen tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DFSI is agreeing to provide vehicle loan to buyers of MB India s vehicles at a lower interest rate as decided between DFSI and MB India and also to provide better customer luxury experience, structured insurance products offerings with claims processing within minimum turnaround time, tailor made products, quick loan approvals, maintain customer relation etc. as per the MOU between FSI and Mb India. Hence, the supply of service by DFSI to MB India is covered under SAC 999792 as Other miscellaneous Services, agreeing to do an act. As per Sl.no. 35 of Notification No 11/2017 Central Tax (Rate) dt 28.06.2017 as amended, Other miscellaneous services under Heading 9997 are chargeable to 9% CGST and to SGST as per Sl no 35 of Notification No. II(2)/CTR/532(d-14)/2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended. 6. In view of the above, we rule as under: RULING The interest subvention income received by Daimler Financial Services India Private Limited(DFSI) from Mercedes-Benz India Private Limited (MB India) to reduce the effective interest rate to the final customer is chargeable to GST as a supply under SAC 999792 as Other miscellaneous Services , agreeing to do a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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