2021 (4) TMI 618 - AAR - GST

Liability for GST on Interest & Stamp Tax Reimbursement

In Re: M/s. Enpay Transformer Components India Private Limited.

The applicant is liable to pay GST on a reverse charge basis for the interest on late payment of invoices for imported goods, with the rate matching the ... Reverse Charge Mechanism - Liability of GST - rate of GST - pure agent services or not - interest on late payment of invoices of imported goods - reimbursement of Stamp tax paid as a pure agent. Whether liability to pay GST on reverse charge arises if amount is paid as interest on late payment of invoices of imported goods? - If yes, then at what rate? - HELD THAT:- The foreign buyer has tolerated the act of receiving payment after a lapse of a period of 120 days from the date of the invoice in respect of the goods supplied by them to the applicant for which interest is to be paid by the applicant. We, therefore, find that the aforementioned act will be covered under the Supply of Services under Entry No.5(e) of the aforementioned Schedule-II which reads as “(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”. However, since the payment of interest made by the applicant to the foreign buyer is connected to the goods imported by them and is with regard to the late payment of the value of goods imported by them from the foreign buyer, we find it absolutely necessary to refer to Section 15 of the CGST Act, 2017 which covers the valuation aspect in respect of supply of goods and services - Sub-section (2) of Section 15 pertains to all the things that shall be included in the value of supply. On going through the said sub-section, we find that as per Section-15(2)(d), value of supply also includes “interest or late fee or penalty for delayed payment of any consideration for any supply.” The payment of interest by the applicant will be covered under the supply of services under Entry No.5(2)(e) of Schedule-II of the CGST Act, 2017 and is liable to GST in view of the provisions of Section-15(2)(d) of the said Act. Whether liability to pay GST on reverse charge arises if amount is paid for reimbursement of Stamp tax paid as a pure agent by M/s.Enpay, Turkey on our behalf? - HELD THAT:- In the instant case, the supplier of goods i.e. M/s.Enpay, Turkey has incurred the expenditure on stamp duty/tax on behalf of the applicant against the Corporate Guarantee entered into by them with CITI Bank for which they have raised reimbursement invoice of said payment, to M/s.Enpay, India. After going through the aforementioned provisions and comparing the same to the issue in hand, it is found that, the expenditure or costs incurred by the supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if, and only if, the supplier i.e. M/s.Enpay, Turkey satisfies all the conditions envisaged in Rule 33(i) to (iii) as well as the conditions (a) to (d) envisaged in the Explanation to Rule 33 of the CGST Rules, 2017 - taking into consideration the provisions of Rule 33 of the CGST Rules, 2017, we find that the amount of stamp tax incurred by the supplier on behalf of the applicant, shall be excluded from the value of supply, if, and only if, the supplier i.e. M/s.Enpay, Turkey satisfies all the conditions envisaged in Rule 33(i) to (iii) as well as the conditions (a) to (d) envisaged in the Explanation to Rule 33 of the CGST Rules, 2017. The supplier of the applicant does not fulfil/satisfy all the conditions required for being a ‘Pure agent’ in terms of the provisions of Rule 33 of the CGST Rules, 2017 and therefore, the expenditure or costs incurred by the supplier of the recipient of supply cannot be excluded from the value of supply in terms of the provisions of Rule 33 of the said rules and is liable to GST on reverse charge basis. Issues Involved:1. Liability to pay GST on reverse charge for interest on late payment of invoices for imported goods.2. Liability to pay GST on reverse charge for reimbursement of Stamp tax paid as a pure agent by the supplier.Detailed Analysis:Issue 1: GST on Reverse Charge for Interest on Late Payment of Invoices for Imported GoodsFacts and Submission:The applicant imports goods from its holding company in Turkey, with a payment term of 120 days from the invoice date. If payment is delayed, the holding company charges interest. The applicant sought clarification on whether GST on a reverse charge basis applies to the interest paid on such late payments and, if so, at what rate.Legal Provisions:- Section 7 of the CGST Act, 2017: Defines 'supply' to include all forms of supply of goods or services.- Schedule II of the CGST Act, 2017: Specifies activities to be treated as supply of goods or services, including 'agreeing to the obligation to tolerate an act or a situation' under Entry No. 5(e).- Section 15 of the CGST Act, 2017: Covers the valuation of supply, including interest for delayed payment as part of the value of supply.Findings:The interest paid for delayed payment of invoices is considered a supply of services under Entry No. 5(e) of Schedule II. As per Section 15(2)(d), the value of supply includes interest for delayed payment, making it liable to GST. The rate of GST will be the same as the IGST rate applicable to the imported goods.Conclusion:The applicant is liable to pay GST on a reverse charge basis for the interest on late payment of invoices for imported goods. The rate of GST will match the IGST rate applicable to the imported goods.Issue 2: GST on Reverse Charge for Reimbursement of Stamp Tax Paid as a Pure AgentFacts and Submission:The applicant obtained a bank credit facility from CITI Bank based on a Corporate Guarantee issued by its holding company in Turkey, which paid Stamp tax in Turkey and raised a reimbursement invoice to the applicant. The applicant sought clarification on whether GST on a reverse charge basis applies to this reimbursement, arguing it should be considered as payment made to a pure agent.Legal Provisions:- Rule 33 of the CGST Rules, 2017: Defines conditions under which costs incurred by a pure agent are excluded from the value of supply.- Section 2(31) of the CGST Act, 2017: Defines 'consideration' to include payments made in respect of the supply of goods or services.- Section 15 of the CGST Act, 2017: Covers the valuation of supply, including reimbursements.Findings:The supplier must satisfy all conditions under Rule 33 to qualify as a pure agent. The conditions include:- Acting as a pure agent on authorization by the recipient.- Separately indicating the payment in the invoice.- Procuring supplies in addition to the services supplied on their own account.The applicant failed to provide sufficient documentary evidence to prove that the supplier met these conditions. Specifically:- No authorization document was provided.- The reimbursement was not indicated separately in the supply invoice.- The bank guarantee was directly related to the supply of goods, not an additional service.Conclusion:The supplier does not qualify as a pure agent under Rule 33. Therefore, the reimbursement of Stamp tax forms part of the consideration for the supply of goods and is liable to GST on a reverse charge basis.Ruling:1. Interest on Late Payment of Invoices:- Liability: Yes, liable to pay GST on a reverse charge basis.- Rate: Same as the IGST rate applicable to the imported goods.2. Reimbursement of Stamp Tax:- Liability: Yes, liable to pay GST on a reverse charge basis.- Reason: Supplier does not fulfill conditions to be considered a pure agent under Rule 33.