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TMI Blog2022 (10) TMI 1217X X X X Extracts X X X X X X X X Extracts X X X X ..... during the Financial Year 2015-16. PSPCL has now decided to prepay this loan of PFC due to their higher rale of interest. PFC raised the demand of prepayment premium of Rs 16,85,71,429/- inclusive of GST @ 18%. (3) The PSPCL had submitted an application for advance ruling in form GST ARA-01 dated 01.03.2021 seeking to know Whether the prepayment premium to be charged by PFC, New Delhi for prepayment of loans is taxable under CGST Act, 2017? 2. Proceedings Under Section 98 of CGST/PGST Act: In this regard personal hearings were conducted on 18.02.2022 and 05.08.2022 before the Advance Ruling Authority, Punjab. During proceedings on 18.02.2022, Mr. Sanjeev Kumar, Accounts Officer of PSPCL appeared on behalf of the applicant and submitted his written 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided to prepay this loan of PFC due to their higher rate of interest. PFC has raised the demand of prepayment premium of Rs. 16,85,71,429 inclusive of GST @18%. 3. Extracts of the sanction letter of Ioan of lender (PFC) dated 29.01.2016 reproduced verbatim as under As per clause no. 5 of terms & conditions of Sanction letter of PFC dated 29.01.2016, PFC will charge prepayment premium in case of prepayment of loan by PSPCL. "5. PRE-PAYMENT OF LOAN 5.1 The Borrower may prepay the outstanding principal amount of the loan only after obtaining the prior written approval from the Corporation which will be at the sole discretion of the Corporation. The approval for prepayment 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 contemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification No. 27/2018-Central Tax (Rate) dated 31 December 2018, financial and related services are taxable at 18% rate of tax. 7. DISCUSSIONS AND FINDINGS: - 1. The submissions made by the applicant in his advance ruling application, additional submissions and the submissions made at the time of personal hearings held on 18.02.2022 and 05.08.2022 have been carefully examined and analysed. 2. The applicant, i.e., M/s Punjab State 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply 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. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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