2020 (3) TMI 1291 - AAR - GST

Taxability of Delay Interest on Goods Delivery under CGST Act Section 9 & HSN Code 999794

The interest charged for delay in delivery of goods is deemed taxable under Section 9 of the Central Goods and Services Tax Act, 2017, and falls under HSN ... Levy of Interest for delay in delivery of goods - delivery of goods is taxable under Section 9 of CGST Act, 2017 or HGST Act, 2017 or exempt under Section 11 of CGST Act, 2017 or HGST Act, 2017 - HSN Code - HELD THAT:- On perusal of Para 5 (e) of Schedule II of Central Goods and Services Act 2017; it is observed that for an activity to be supply of service there must be an agreement; that there must be benefit and obligation; that there must be a toleration of act - As submitted by the applicant (a) there is a written contract between the applicant and the rice millers; (b) the rice miller is availing benefit of enhanced period for the delivery of milled rice and it had an obligation under contract to provide the milled goods within specified period and to pay interest in case of delay in delivery of goods and (c) the applicant is tolerating an act of delay in delivery of milled rice by the rice millers and is charging interest (holding charges) on the same and not taking any legal recourse for the specific performance of the contract. The interest charged by the applicant for delay in delivery of milled rice as per the time prescribed in the contract is a supply of service under Para 5 (e) of Schedule II of Central Goods and Services Act 2017 - service “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act” falls under the HSN Classification 9794 and is a taxable supply. Issues:1. Whether interest charged for delay in delivery of goods is taxable under Section 9 of CGST Act, 2017 or HGST Act, 2017 or exempt under Section 11 of CGST Act, 2017 or HGST Act, 2017.2. What is the HSN Code of the service mentioned in the first issueRs.Analysis:Issue 1:The applicant, acting as a procurement agency for the Government of Haryana and Government of India, purchases paddy from arthias and gets it milled from rice millers. The contract with rice millers includes a provision for charging interest for delay in delivery of milled rice. The applicant contends that this interest, known as holding charges, is a taxable supply under HSN 999794. The applicant relies on the Indian Contract Act, 1872, specifically Sections 73 and 74 dealing with liquidated damages. The applicant argues that tolerating the act of delay in delivery constitutes a taxable supply under Para 5 (e) of Schedule II of the Central Goods and Services Act, 2017. The applicant meets the conditions for classifying the supply under HSN 999794, including the presence of an agreement, benefit and obligation, and toleration of the act.Issue 2:To determine the taxability of the interest charged for delay in delivery of goods, the relevant sections of the CGST Act, 2017 are examined. Section 9 of the CGST Act, 2017 pertains to the levy and collection of tax on intra-State supplies of goods or services. Section 11 provides for the power to grant exemptions from tax based on public interest. The HSN Code 999794 describes the service of agreeing to tolerate an act, which aligns with the applicant's situation. The ruling confirms that the interest charged for delay in delivery of goods is taxable under Section 9 of the CGST Act, 2017 and classifies the service under HSN 999794.This comprehensive analysis of the judgment addresses the issues raised and provides a detailed understanding of the legal reasoning and implications involved in the ruling.