Entire Equated Yearly Installment Payments Including Interest Components Subject to GST Under Annuities Model

The AAR Telangana ruled that GST is applicable on the entire Equated Yearly Installment payments (including both principal and interest components) made by the local authority to contractors under the Annuities Model. The Authority determined that interest on delayed payments constitutes part of the consideration for supply under Section 15(2)(d) of CGST Act, making it taxable. The exemption under Entry No. 3 of Notification 12/2017-Central Tax (Rate) was found inapplicable as interest is not treated as a separate service but forms part of the overall consideration subject to GST under the existing valuation rules.

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Issues Involved:
1. Liability of GST on payment of Equated Yearly Installment (including Principal and Interest) under Annuities Model by a local authority.
2. Applicability of Entry No. 3 of Notification Number 12/2017 - Central Tax (Rate) for payment of interest included in Equated Yearly Installments under Annuities Model.

Issue 1: Liability of GST on Equated Yearly Installment (including Principal and Interest):
The applicant, a local authority, sought clarification on the liability of GST on Equated Yearly Installment payments made to contractors, which include both principal and interest components. The applicant raised concerns regarding the classification of service and the applicable rate of GST. The Advance Ruling Authority admitted the application after verifying the payment of fees and receiving no objection from the jurisdictional officer. During the personal hearing, the authorized representatives reiterated the payment structure and expressed the need to determine the tax liability on the interest component of delayed payments. The Authority discussed that as per Section 15(2)(d) of the CGST Act, 2017, interest on delayed payments is considered part of the consideration for supply, making it liable for GST. Therefore, all payments, including interest on delayed payments, to the contractor are subject to tax under the CGST Act, 2017.

Issue 2: Applicability of Entry No. 3 of Notification Number 12/2017 - Central Tax (Rate):
The applicant inquired about the applicability of Entry No. 3 of Notification Number 12/2017 - Central Tax (Rate) concerning the payment of interest included in Equated Yearly Installments under the Annuities Model, considering interest as a pure service. The Authority, after deliberation, concluded that the question regarding the applicability of the said notification did not arise in the context of the discussion and findings related to the liability of GST on interest as part of the consideration for the supply. Therefore, the ruling clarified that interest forms part of the consideration as per the valuation rules discussed, and no separate classification exists for it under the GST Act.

This judgment by the Authority for Advance Ruling in Telangana addresses the liability of GST on Equated Yearly Installments, including interest, paid by a local authority to contractors. The ruling establishes that interest on delayed payments is considered part of the consideration for supply and is therefore subject to GST under the CGST Act, 2017. Additionally, the ruling clarifies that the specific classification under the Notification Number 12/2017 - Central Tax (Rate) does not apply separately to the interest component, as it is already covered under the valuation rules of the GST Act.

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