Bounce charges deemed taxable supply under GST Act by Appellate Authority for Advance Ruling

The Appellate Authority for Advance Ruling (AAAR) upheld the ruling that bounce charges collected by the appellant constitute a supply of services under Schedule II to the CGST Act. The AAAR concluded that the appellant tolerating the default by borrowers falls under the provisions of entry 5(e) of Schedule II, making it a taxable supply under GST. The bounce charges were considered as consideration for the supply of services, falling within the ambit of 'supply' under the GST regime. International rulings were deemed not binding, and the bounce charges were to be included in the value of the loans as interest, exempt from GST.

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Issues Involved:
1. Whether the bounce charges collected by the appellant should be treated as a supply under the GST regime.
2. Whether the bounce charges fall within the ambit of 'supply' under the GST regime.
3. Whether the bounce charges collected by the appellant for breach of contract by the customer are covered under clause (e) of Entry 5 of Schedule II to the CGST Act.
4. Whether the bounce charges are considered as consideration for supply of services.
5. Whether the international rulings and guidelines are applicable in determining the taxability of bounce charges.
6. Whether the bounce charges should be included in the value of the supply in view of clause (d) of sub-section (2) of Section 15 of the CGST Act.

Issue-wise Analysis:

1. Whether the bounce charges collected by the appellant should be treated as a supply under the GST regime:
The Appellate Authority for Advance Ruling (AAAR) upheld the view that bounce charges collected by the appellant amount to a supply of services under Sr. No. 5(e) of Schedule II to the CGST Act. The AAAR concluded that the appellant has tolerated the act or situation of default by the borrowers, which is covered under the provisions of entry 5(e) of Schedule II to the CGST Act, 2017.

2. Whether the bounce charges fall within the ambit of 'supply' under the GST regime:
The AAAR examined Section 7 of the CGST Act, which defines 'supply'. It was determined that for an activity to be treated as a supply under GST, it must be carried out for a consideration, except those activities specified in Schedule I. The AAAR found that the bounce charges collected by the appellant constitute a supply for consideration under clause (a) of Section 7(1).

3. Whether the bounce charges collected by the appellant for breach of contract by the customer are covered under clause (e) of Entry 5 of Schedule II to the CGST Act:
The AAAR analyzed clause (e) of Entry 5 of Schedule II, which includes activities such as agreeing to the obligation to tolerate an act or situation. The AAAR concluded that the appellant's tolerance of the default by the borrower, in exchange for bounce charges, falls under this clause, making it a supply of services.

4. Whether the bounce charges are considered as consideration for supply of services:
The AAAR emphasized that consideration includes any payment made in respect of, in response to, or for the inducement of the supply of goods or services. The bounce charges were found to be a monetary value for the act of tolerance by the appellant in the case of default by the borrower. Therefore, the bounce charges are considered as consideration for supply of services.

5. Whether the international rulings and guidelines are applicable in determining the taxability of bounce charges:
The AAAR acknowledged the appellant's reliance on various international rulings and guidelines, such as those from the Australian Tax Office (ATO). However, the AAAR noted that these international rulings are not binding and interpreted the issue based on the provisions of the CGST Act, 2017.

6. Whether the bounce charges should be included in the value of the supply in view of clause (d) of sub-section (2) of Section 15 of the CGST Act:
The AAAR examined Section 15(2)(d) of the CGST Act, which includes interest or penalty for delayed payment of any consideration for any supply. The AAAR concluded that the bounce charges, being in the nature of penalty, should be included in the value of the loans, which is considered as interest. Therefore, the bounce charges would be treated at par with interest and would be exempt from GST under the relevant notifications.

Conclusion:
The AAAR upheld the ruling of the Authority for Advance Ruling (AAR) that the bounce charges collected by the appellant from their borrowers in the event of dishonoring of the cheques or failure of payment through ECS and other electronic means due to non-availability of sufficient funds in the borrower’s account would attract GST. The AAAR concluded that the appellant has tolerated the act or situation of default by the borrowers, which is covered under the provisions of entry 5(e) of Schedule II to the CGST Act, 2017, making it a supply of services.

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