Government incentive to cooperative banks held taxable as consideration, not subsidy, actionable claim, or exempt differential interest.

An incentive paid by a State Government to cooperative banks under a lending-linked scheme was held to be performance-linked remuneration, not a subsidy to borrowers. Because the payment depended on achievement of lending targets and varied with disbursement, it fell within the statutory meaning of consideration under the CGST Act, while the subsidy exclusion applies only to subsidies granted by the Central or State Government in the relevant sense. The amount was also not treated as falling within Schedule III, as an actionable claim, or as exempt differential interest. The exemption notification plea failed because exemption must be strictly construed and the claimed exemption was not established.

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Issues: Whether the incentive paid by the State Government to cooperative banks under the scheme was a subsidy and, if not, whether it formed consideration for supply and was liable to GST.

Analysis: The State Government resolution used distinct expressions for interest subsidy to borrowers and incentive to banks. The incentive was payable to banks on achievement of lending targets and varied with the quantum of disbursement, which showed that it was performance-linked remuneration and not a subsidy to borrowers. The amount therefore fell within the breadth of consideration under section 2(31) of the CGST Act, 2017, since the statutory exclusion applies only to subsidy given by the Central Government or a State Government. The claim that the amount was covered by section 7(2), Schedule III, or as an actionable claim was rejected because the payment did not answer those descriptions. The plea based on differential interest and Notification No. 12/2017-Central Tax (Rate) was also rejected, since the exemption was not established and exemption notifications must be strictly construed.

Conclusion: The incentive was held to be taxable consideration and not subsidy, actionable claim, or exempt differential interest; the appeal was rejected.

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