2018 (5) TMI 809 - AAR - GST

Interest on Short Term Loans by Del Credere Agents Exempt from GST

The Authority for Advance Rulings, Gujarat, ruled that the interest charged by M/s. Shreenath Polyplast Pvt. Ltd. on short term loans to customers, acting ... Services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount - consideration represented by way of interest - value of supply includes interest or late fee for delayed payment of any consideration for any supply - transaction of extending loan is distinct from supply of goodsServices by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount - transaction of extending loan is distinct from supply of goods - consideration represented by way of interest - Whether interest charged by the Del Credere Agent on short term, transaction based loans to buyers is exempt from GST under Sl. No. 27 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017. - HELD THAT: - The Authority found that the DCA's extension of short term loans to customers is a transaction separate and distinct from the principal's supply of goods and the commission arrangement between principal and DCA. Section 15(2)(d) (value of supply including interest or late fee for delayed payment of consideration for any supply) does not apply because the interest received by the DCA is consideration for a loan and not interest for delayed payment of the principal's supply. Sl. No. 27 of the table to Notification No. 12/2017 Central Tax (Rate) grants exemption to services by way of extending loans insofar as the consideration is represented by interest. Since the consideration for the DCA's service is interest on the loan, that service squarely falls within the exemption at Sl. No. 27 and is therefore exempt from GST. [Paras 8, 9, 10]Interest charged by M/s. Shreenath Polyplast Pvt. Ltd., as DCA, for extending short term loans is covered by Sl. No. 27 of Notification No. 12/2017 Central Tax (Rate) and is exempt from GST.Final Conclusion: The Authority ruled that the applicant's activity of extending short term loans, where consideration is represented by interest, is exempt from GST under Sl. No. 27 of Notification No. 12/2017 Central Tax (Rate) (and corresponding State Notification) because the loan transaction is distinct from the principal's supply of goods. Issues:1. Whether interest charged on short term loans by a Del Credere Agent (DCA) to buyers of material is exempt from tax under Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017Rs.Analysis:The applicant, M/s. Shreenath Polyplast Pvt. Ltd., acting as a DCA, plays a dual role of order booking and guaranteeing payment for goods supplied by the principal. The DCA does not directly supply goods to customers but facilitates transactions between the principal and customers. In cases of delayed payment by customers, the DCA extends short term loans, charging interest as mutually agreed. The DCA raises debit notes for interest payments, subject to TDS. The State Tax, GST Cell opines that no additional amount for loans should be added to the price for GST calculation.The key issue is whether the interest charged by the DCA on short term loans to customers is exempt from GST under Sl. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The DCA's loan transactions are separate from the supply of goods by the principal, and the interest is considered as consideration for the loan, not for the supply of goods. Section 15(2)(d) of the CGST Act, 2017 specifies that interest for delayed payment of consideration is taxable, but in this case, the interest is towards the loan, not the supply of goods.Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 exempts services by way of extending loans where the consideration is represented by interest. As the interest charged by the DCA is in consideration of the short term loans provided, it falls under the exemption provided by Sl. No. 27 of the notification. Therefore, the interest charged by M/s. Shreenath Polyplast Pvt. Ltd. on short term loans is exempt from GST as per the ruling.In conclusion, the Authority for Advance Rulings, Gujarat, ruled that the service provided by M/s. Shreenath Polyplast Pvt. Ltd. in extending short term loans, where the consideration is represented by interest, is covered under Sl. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and is exempt from payment of Goods and Services Tax.