Interest/penalty for late payment of subscription by members classified as supply under GST

The interest/penalty collected for delay in payment of monthly subscription by the members is considered a supply under GST. It is classified under SI. No 15 of Heading 9971 Financial and related services, with GST applicable at 12%.

---

---

Issues Involved:
1. Whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST.
2. If the said interest/penalty is a supply, what is the classification and rate of duty applicable on the said supply.

Issue 1: Whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST.

The applicant, engaged in conducting chit auctions, charges a foreman commission of 5% on the prize money and pays GST at 12% on this commission. The issue arises when members delay their subscription payments, and the applicant charges an interest/penalty for such delays. The applicant argues that this interest/penalty should not be considered a supply under GST, citing Schedule III to the APGST Act, 2017, which defines actionable claims as neither supply of goods nor services. They also reference Notification No.11/2017-CT (Rate) and Circular No.102/21/2019-GST, which exempt interest on deposits from GST.

However, the authority observes that Section 15(2)(d) of the GST Act includes interest or penalty for delayed payment of any consideration as part of the value of supply. Thus, such interest or penalties should be added to the transaction value and taxed at the same rate as the original supply. The authority further clarifies that the additional amount charged for delayed payments is in the nature of a penalty, not interest, and hence does not qualify for the exemption under entry no 27 of Notification No.12/2017.

Issue 2: If the said interest/penalty is a supply, what is the classification and rate of duty applicable on the said supply.

The authority concludes that the additional amount charged for delayed payments should be classified under the principal supply, which is financial and related services. According to Section 8 of the GST Act, composite supplies are classified based on the principal supply. Therefore, the interest/penalty charged takes the classification of the original supply, which is financial and related services under SAC code 9971. The applicable GST rate for this classification is 12%, as per Notification No. 8/2017-Integrated Tax (Rate) dated 28th June 2017.

Ruling:

1. The interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST.
2. The interest/penalty is classified under SI. No 15 of Heading 9971 Financial and related services, with GST applicable at 12%.

---