TMI Blog2020 (7) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... onal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt from members is mandatory for payment of prize money to the winner by due date. However, many a time, the subscribers fail to deposit subscriptions by the specified date. In such scenario, the applicant is borrowing the money from banks by payment of interest and making payment to the prized subscribers. In order to maintain discipline in payment and also to cover the interest cost, the applicant charges interest/penalty by whatever name called, from the members paying the subscriptions belatedly and the interest is dependent upon the period of delay from specified date to actual date of payment. The interest /penalty has no element of services except that it is in an auction in money inasmuch as it is collected as a part of subscription for delay. The applicant had filed an application in form GST ARA-01, dt.o6.031.2020, paying the prescribed amount of fee for seeking Advance Ruling. 4. Questions Raised Before the Authority The applicant raised the following questions and requested to pass ruling on the following issues. 1) Whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST? 2) If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on deposit extended in terms of Notifications No.12/2017-CT(Rate) supra. D. The consideration towards the foreman services is represented by 5% of prize money on which the applicant is already discharging the GST liability. E. In view of the above, the interest/penalty collected for delay in payment of subscription amount is treated as neither supply of goods nor supply of services and cannot be levied to GST. Interpretations in respect of Questions No.2 is that since the activity is neither supply of goods nor supply of services, the same cannot be charged GST, and the question of classifying the services does not arise and no GST is payable on the said activity. 6. Record of Personal Hearing: The authorised representative of the applicant, Shri R.Narasimha Murthy appeared in person for Personal Hearing held on 05.02.2020 and he reiterated the submissions already made in the application and requested to pass necessary orders. 7. Discussion and Findings The Advance Ruling Authority observed the facts of the case, and the documents on record submitted by the applicant. The applicant, M/s. Usha Bala Chits Private Limited, El uru is dealing in fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake 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. Further Section 8 of GST Act 2017 deals with composite supply - Sec 8 - Composite supply means a supply comprises two or more goods/services, which are naturally bundled and supplied in with each other in the ordinary course of business, one of which is a principal supply. In this case financial and related service is the principal supply and all other ancillary supplies shall take colours from the principal supply itself and it shall be classified as principal supplies i.e. financial and related services. 7.2 Applicant s contention is, on the delay of payment, the additional amount charged is interest in nature. To qualify the amount as interest, there mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and is separately issuing another invoice for providing the services of extending loans to Y, the consideration for which is the interest of 2.5% per month and an additional / penal interest amounting to ₹ 500/- per month for each delay in payment. Case - 2: X sells a mobile phone to Y. The cost of mobile phone is ₹ 40.000/-. Y has the option to avail a loan at interest of 2.5% per month for purchasing the mobile from M/s ABC Ltd. The terms of the loan from M/s ABC Ltd. allows Y a period of four months to repay the loan and an additional / penal interest @ 1.25% per month for any delay in payment. As per the provisions of sub-clause (d) of sub-section (2) of section 15 of the GST Act, the value of supply shall include interest or late fee or penalty for delayed payment of any consideration for any supply . Further in terms of SI. No. 27 of notification No. 12/2017- Central Tax (Rate) dated the 28.06.2017 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) is exempted. Accordingly, based on the above provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, either actual or constructive, of the claimant, which the Civil Courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent. Here if we observe the difference between lottery ticket and railway ticket, a lottery ticket is actionable claim and railway ticket is not actionable claim. Purchase of a railway ticket gives the right to a person to travel by railway. It is nothing other than a contract of carriage. It clearly clarified that assignment of right of recovery of unsecured debt is actionable claim. Therefore chit amount will not come under purview of actionable claim. 7.4 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. Accordingly we pass the following order. RULING Query: Whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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