Cooperative banks' incentives under Atma Nirbhar Gujarat Sahay Yojna are taxable supply of services under Section 7 CGST Act

The AAAR Gujarat held that incentives received by cooperative banks under the Atma Nirbhar Gujarat Sahay Yojna constitute taxable supply of services under Section 7 of CGST Act. The incentives, varying based on loan disbursement performance, were consideration for services provided to beneficiaries under the government scheme. The authority rejected arguments that incentives were subsidies, actionable claims, or compensation for interest rates. The banks' contention that they provided services only to loanees and not the state government was dismissed. The appeal by the cooperative bank was rejected, confirming GST liability on the incentives received.

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Issues Involved:
1. Whether the incentives received under "Atma Nirbhar Gujarat Sahay Yojna" could be considered as subsidy and not chargeable to tax.
2. Whether the incentive received under the scheme could be considered as supply of service under section 7 of the CGST Act.
3. Whether the incentive received under the scheme, if considered as supply, would be covered under section 7(2) of the CGST Act.
4. Whether the incentive received under the scheme could be excluded from the value of taxable supply under section 15(2)(e) of the CGST Act, 2017.

Summary:

1. Incentives as Subsidy and Taxability:
The appellant argued that the incentives received under "Atma Nirbhar Gujarat Sahay Yojna" should be considered as a subsidy and not chargeable to GST. They contended that the subsidy in the form of an incentive is not consideration under Section 2(31) of the CGST Act, as it is given by the State Government. The GAAR ruled that the incentive is liable to GST and does not merit exclusion from valuation under section 15(2)(e) of the CGST Act. The appellate authority upheld this ruling, stating that the terms "subsidy" and "incentive" are used distinctly in the government resolution, indicating different meanings. The incentive is considered a consideration for the services provided by the banks in disbursing loans.

2. Supply of Service under Section 7:
The appellant claimed that the incentive should not be considered as a supply of service under section 7(2) of the CGST Act and is not taxable under Schedule III of the Act. The appellate authority found that the incentive is directly linked to the service provided by the banks in granting loans under the scheme and thus falls within the definition of "consideration" under section 2(31) of the CGST Act. The authority also noted that the incentive is not covered under the exclusion provided in section 7(2) or Schedule III.

3. Coverage under Section 7(2):
The appellant did not provide a clear explanation of how the incentive would fall within the ambit of section 7(2) or Schedule III. The appellate authority reiterated that the incentive is a consideration for the services provided and does not fall under the exclusions mentioned in section 7(2) or Schedule III.

4. Exclusion from Taxable Supply under Section 15(2)(e):
The appellant argued that the incentive should be excluded from the value of taxable supply under section 15(2)(e) of the CGST Act. The appellate authority rejected this argument, stating that the incentive is a consideration for the services provided by the banks and is not a subsidy that can be excluded from the value of taxable supply.

Alternative Arguments and Case Laws:
The appellant's alternative plea that the incentive could be considered as an "Actionable Claim" was also rejected. The appellate authority clarified that actionable claims are intangible movable properties and the incentive does not fall within this category. The appellant's reliance on the case laws of Rashmi Hospitality Services Pvt. Ltd. and Ponni Sugars and Chemicals Limited was found to be misplaced as the facts and legal questions in those cases were different from the present case.

Conclusion:
The appeal filed by M/s Rajkot Nagrik Sahakari Bank Limited against the Advance Ruling No. GUJ/GAAR/R/35/2021 was rejected, and the ruling that the incentive received under the "Atma Nirbhar Gujarat Sahay Yojna" is liable to GST was upheld.

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