TaxTMI 
TaxTMI 
2020 (9) TMI 1238
X X X X Extracts X X X X
X X X X Extracts X X X X
....Advance Ruling, Andhra Pradesh. 1. Brief Facts of the Case: The appellant is a company engaged in conducting chit auctions. The foreman is responsible for registering the members, collection of money from the members, conduct of auctions and other related matters. The applicant is collecting the foreman commission @5% from the amount to be distributed to the member taking the prize money. The GST paid on the foreman commission is @12%. If the subscribers fail to deposit subscriptions by the specified date, appellant charges interest/penalty and it is dependent upon the period of delay from specified date to actual date of payment. Under the GST law, the Appellant is of the view that penalty/interest collected from the defaulting subscribers cannot be treated as supply and therefore, the same is not subjected to GST levy. The Appellant had filed an application for Advance Ruling before the Authority for Advance Ruling on 06.01.2020 on the following questions: 1) Whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST? 2) If the said interest/penalty is a supply, what is the classification and rate of d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est on deposit, extended in terms of Notification No.12/2017-CT(Rate) supra. e) The consideration towards the foreman services is represented by 5% of the prize money on which the applicant is already discharging GST liability. f) 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. g) However, the Advance Ruling authority misrepresented the facts by referring to the subscription amount cannot carry interest ignoring the fact that there is a legal interest provision in terms of Chit Fund Act, 1982 and AP Chit Fund Rules, 2008 and thus, the appellant has collected interest as provided under law. Hence, the penalty is nothing but interest and there is no provision under Chit Fund Act, 1982 to collect penalty, but only interest. h) There is absolutely no analogy of chit amount with railway ticket, which is an amount paid for transportation and not a financial arrangement. Therefore, the original authority erred in making improper comparison to arrive at the decision. i) Further reference is invited to Section 3 of Transfer of Property Act, 1982 whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the subscribers and not consideration towards the supply of services. E. The appellant submits that in terms of Chit Fund Act, 1982 and Andhra Pradesh Chit Fund Rules, 2008, the foreman can collect interest not exceeding 18% per annum on the subscription amount paid belatedly by the subscriber. The appellant is following the said provisions and is collecting the interest on the outstanding subscription amount, which is nothing but the debt to be paid by the subscriber. F. The appellant submits that the word-Interest - has been defined, vide clause 2(zk) of Notification No.11/2017-CT (Rate) dated 28.06.2017 as, "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 utilized." G. A perusal of the above clearly indicates that the debt can be incurred in respect of any claim or right or obligation, which in this case is incurred by the subscriber by defaulting to pay the amount within the due date. Hence, what is collected by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....light of the Ruling pronounced by the AAR. The issue at hand for discussion is whether the interest / penalty charged on the delayed payment of subscriptions by Members of a Chit Fund, is a supply liable to GST under the GST law. 1. It is an undisputed fact that the appellant is a company engaged in Chit Auctions. The appellants are conducting the chits as regulated by the Chit Fund Act, 1982 and Andhra Pradesh Chit Fund Rules, 2008. 2. The Ruling of the Advance Ruling Authority, Andhra Pradesh in the orders dated 05.05.2020 held that the said interest/penalty is classified under Sl. No 15 of Heading 9971 Financial and related services, GST @12% as per Notification No. 8/2017-Integrated Tax (Rate) dated, the 28th June, 2017 as amended from time to time. 3. At the outset, it would be appropriate to examine the actual HSN entry relating to the taxable event regarding Chit funds. As per Sl. No.15 of the Notification No.11/2017-Central Tax(Rate), dated 28.06.2017 under Heading 9971, the description of the taxable service reads as follows: (i) Services provided by a foreman of a chit fund in relation to chit. Explanation.- (a) "chit" means a transaction whether called chit, ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on the prized subscriber furnishing sufficient security for the due payment of future subscriptions, be bound to pay him the prize amount: Provided that the prized subscriber shall be entitled to the payment of the prize amount without any security whatsoever if he agrees to the deduction therefrom of the amount of all future subscriptions and in such a case, the foreman shall pay the prize amount to the prized subscriber within seven days after the date of the draw or before the date of the next succeeding instalment, whichever is earlier: Provided further that where the prize amount has been paid to the prized subscriber under the first proviso, the amount deducted shall be deposited by the foreman in an approved bank mentioned in the chit agreement and he shall not withdraw the amount so deposited except for the payment of future subscriptions. (2) If, owing to the default of the prized subscriber, the prize amount due in respect of any draw remains unpaid until the date of the next succeeding instalment, the foreman shall deposit the prize amount forthwith in a separate account in an approved bank mentioned in the chit agreement and intimate in writing the fact of such d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....instalments, which the law under Section 21(1)(c) of the Chit Fund Act, 1982 entitles him to retain. It is pertinent to add that a Chit Fund business survives on the collection of instalments from all subscribers to a chit, which is then given to the Prized Subscriber who succeeds by way of lots or auction, and is repeated month after month till the conclusion of the chit. Any failure in payment of instalment by a subscriber would hamper the foreman in making the payment to the Prized Subscriber and jeopardize the entire flow of the chit. As foreman of the chit, it is his duty to collect and pass on the moneys to the Prized Subscriber. This service of ensuring that all instalments are received from all subscribers to a chit is the service rendered by the foreman in relation to the chit. As per Section 2(d) "chit amount" means the sum-total of the subscriptions payable by all the subscribers for any instalment of a chit without any deduction of discount or otherwise;" Further, as per Section 2 (m) of the Chit Fund Act, 1982 "prize amount" means the difference between the chit amount and the discount, and in the case of a fraction of a ticket means the difference between the chi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ay of interest or discount (other than interest involved in credit card services); (b) inter sesale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers. 5.2. Further, the term "interest" has been defined under clause (zk) of para 2 of the above said Notification, which reads as under: "(zk) "interest" 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 charges in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized" 5.3. When both the entry mentioned above and the definition of the word "interest" is read contextually, it is clear that what is talked about here is a completely different service and has no relation to the manner a Chit Fund business is run. In a Chit floated by a Chit Fund company, there is no concept of extending deposits, loans or advances. On the other hand, it is the subscribers who come together to subscribe towards the prized amount which is aggregated and taken by each memb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sub-section (44) of Section 65B of the Act has been amended by adding explanation 2 which reads as under: Explanation 2 For the purposes of this clause, the expression transaction in money or actionable claim shall not include (i) any activity relating to 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; (ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out- (a) by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any Other manner; (b) by a foreman of chit fund for conducting or organizing a chit in any manner. By the aforesaid amendment, activity carried out by foreman of a chit fund for conducting or organizing a chit in any manner is to be covered by the expression transaction in money or actionable claim. Thus, it has been brought specifically within the definition of service by the aforesaid amendment whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ession ―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; ... Section 15 explains the value of supply as under: Section 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 orboth where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. (2) The value of supply shall include--- (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax Compensation to States) Act, if charged separately by the supplier; (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or servi....