GST collected on late fee by Electricity board

[Ravikumar Doddi]

Dear sir,

Applicant is a manufacturer supplies goods to electricity board under a tender, usually they collect late fee/ penalty even in VAT regime and now under GST regime receipt of goods after specified date, will GST paid on such late fee/penalty is claimable by the applicant or not. Thanks in advance

[KASTURI SETHI]

Answer to your query is NO. GST paid on late fee and penalty has become an integral part of transaction value under Section 15 (2)(d) of CGST Act. It will be deposited into Govt.'s kitty for ever. The supplier (manufacturer) cannot claim.

[Ravikumar Doddi]

Dear sir,

Thank your very much for your swift response.

section 15(2)(d) interest or late fee or penalty for delayed payment of any consideration for any supplies, it means when recipient pays amount on supplies lately in that case interest charged by the supplier constitute transaction value. But in our case recipient charging late fee along with GST for delay in supply of goods. Do the supplier will get GST input or not.

[KASTURI SETHI]

(i) 999793 Agreeing to refrain from doing an act

(ii) 999794 Agreeing to tolerate an act

Either (i) or (ii) service has been supplied by Electricity Board to the manufacturer inasmuch as the Board has received the consideration in the form of late fee/penalty. Board has received the amount of penalty along with GST from the manufacturer (Applicant). Now the question arises how the manufacturer will prove that the above service (i) or (ii) has been utilized in the course of business or furtherance of business. Can you prove ? It is a hard nut to crack. In my view, ITC is not admissible.

AI Summary

Input tax credit on GST for late fees charged by a utility may be disallowed absent proof of business use. GST on late fee/penalty collected by an electricity board constitutes consideration for a service provided by the board; the manufacturer who paid the fee faces a burden to prove that this service was utilised in the course or furtherance of business. Given the difficulty of establishing such nexus, input tax credit on GST charged with the penalty is unlikely to be admissible.