TMI Blog2022 (10) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... al Goods and Services Tax Act, 2017. On the other hand, the Circular No. 102/21/2019-GST dated 28.06.2019 in para 7.1.6. has analysed the situation where some banks charge pre-payment penalty if the borrower wishes to repay the loan before the maturity of the loan period and clarified that, such amounts paid for acceptance of late payment, early termination of lease or for pre-payment of loan or the amounts forfeited on cancellation of service by the customer as contemplated by the contract as part of commercial terms agreed to by the parties, constitute consideration for the supply of a facility, namely, of acceptance of late payment, early termination of a lease agreement, of prepayment of loan. Therefore, such payments, even though they may be referred to as fine or penalty, are actually payments that amount to consideration for supply, and are subject to GST, in cases where such supply is taxable. In the present case of the applicant the applicant has simply stated that the PFC has raised the demand of prepayment premium of Rs. 16,85,71,429/-. It is not clear as to whether the prepayment premium includes additional/penal interest or pre-payment penalty . As the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission on the matter. On 05.08.2022, Mr. Sanjeev Kumar Accounts officer along with Mr. Punnet Assistant Account Officer appeared and submitted additional documents on the matter i.e. circular no. 178/10/2022-GST dated 3rd August, 2022 of Department of Revenue (Tax Research Unit). 3. QUESTION(S) ON WHICH ADVANCE RULING IS SOUGHT: Whether the prepayment premium to be charged by PFC, New Delhi for prepayment of loans is taxable under GST Act, 2017? 4. ELIGIBILITY OF THE APPLICATION FOR ADVANCE RULING The Section 97(2) of the Central Goods and Services Tax Act, 2017, read with Section 97(2) of the Punjab Goods and Services Tax Act, 2017, provides for the issues on which advance ruling can be sought. 97(2) The question on which advance ruling is sought under this Act, shall be in respect of- (a) Classification of any goods or services or both; (b) Applicability of a notification issued under the provisions of this Act; (c) Determination of time and value of supply of goods or services or both; (d) Admissibility of input tax credit of tax paid or deemed to have been paid: (e) Determination of the liability to pay tax on any goods or services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be granted subject to such conditions as the Corporation may deem fit including prepayment premium, Questions seeking Advance Ruling Whether the prepayment premium to be charged by PEC, New Delhi for prepayment of loan is taxable under CGST Act 2017? Submission: Government of India, Ministry of Finance, Department of Revenue (Tax Research Unit) vide Point no. 7.1.6 of GST Circular No. 178/10/2022-GST dated 03.08.2022 (Copy enclosed) has clarified that amounts paid for pre-payment of loan as contemplated by the contract as part of commercial terms agreed to by the parties, constitute consideration for the supply of a facility, namely prepayment of loan. Therefore, such payment, even though may be referred to as fine or penalty, is actually a payment that amounts to consideration for supply, and is subject to GST, in cases where such supply is taxable. Since these supplies are ancillary to the principal supply for which the contract is signed, they shall be eligible to be assessed as the principal supply. In the present case, it is submitted that principal supply is granting loan by PFC, New Delhi which is exempted vide Serial no. 27 of notification no. 12/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Power Corporation Limited ( PSPCL in short) is a Punjab Government undertaking engaged in generation, transmission and distribution of electricity and is registered under Goods and Service Tax under registration No. 03AAFCP5120QlZC. Transmission or distribution of electricity is exempt under GST Act, vide notification No. 12/2017 dated 28th June, 2017 (Tariff heading 9969). The PSPCL availed a working capital term loan of Rs. 2000 Crore from Power Finance Corporation Limited ( PFC in short) a Financial Institution @11.40% -11.65% during the Financial Year 2015-16. PSPCL has now decided to prepay this loan of PFC due to their higher rate of interest. PFC raised the demand of prepayment premium of Rs. 16,85,71,429/- inclusive of GST @ 18%. 3. In the light of the above, the applicant, in the present application had submitted an application for advance ruling in form GST ARA-01 dated 22.02.2019 seeking to know the following issue: - (i) Whether the prepayment premium to be charged by PFC, New Delhi for prepayment of loans is taxable under CGST Act, 2017? 4. We, find that the Central Board of Indirect Taxes and Customs (CBIC) has issued two Circulars - one Circular No. 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , they shall be eligible to be assessed as the principal supply. Naturally, such payments will not be taxable if the principal supply is exempt. 7. Further, it is imperative here to reproduce the sub-clause (d) of subsection (2) of Section 15 of the CGST, Act which reads as under:- Section 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) .................... (3) ................... (4) ................... (5) ................... The clause essentially stipulates that the interest or late fee or the penalty for delayed payment are also consideration and shall be a part of the value of supply. 8. In the present case of the applicant the applicant has simply stated that the PFC has raised the demand of prepayment premium of Rs. 16,85,71,429/-. It is not clear as to whether the prepayment premium includes additional/penal interest or pre-payment penalty . As the additional/penal interest is in the nature of I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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