TaxTMI 
TaxTMI 
2019 (3) TMI 1008
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.... promote the sale and take orders for goods to be supplied by the principal directly and the second role is to guarantee the principal for the payment of goods supplied. If customers fail to make payment, DCA is required to make the payment to the principal. Normally, Principal takes Bank Guarantee (BG) and / or Security Deposit against which principal assigns certain limit to the DCA in their system. Within that limit, DCA is allowed to place orders of the customers. At the end of the month, for the orders booked through such DCA and goods supplied by the principal, DCA gets the commission from principal for which DCA raises invoices on the principal along with GST. 2.2 It was further clarified that the role of the DCA is limited to order booking and ensuring payment to the principal in case of default from the customer. In the entire transaction, neither principal supplies the goods to DCA, nor does DCA supply the goods to customers. Goods are directly supplied by Principal to the customers at the price declared by the principal from time to time by charging applicable GST on the invoice. On the due date, the customer pays to principal directly for the material supplied to them.....
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.... tax would become payable on the amount charged as interest. 3.3 M/s. Shreenath Polyplast Pvt. Ltd. referred to Section 15(2)(d) of the Central Goods and Services Tax Act, 2017 (herein after referred to as the 'CGST Act, 2017) and submitted that the said provision does not apply to the facts of the present matter. They submitted that in the present case, in the commercial practice as explained earlier, DCA is not supplying any goods to the customer but it is the principal who is directly supplying the goods to the customers. Thus, interest charged by DCA from customers is not for delayed payment of consideration of any underlying supply but said interest is charged towards loan given to the customers and hence such interest will be covered under item 27 of the table attached to the impugned notification. 4. The Gujarat Authority for Advance Ruling (herein after referred to as 'the AAR'), vide Advance Ruling No. GUJ/GAAR/R/2018/3 dated 19.02.2018 = 2018 (5) TMI 809 - AUTHORITY FOR ADVANCE RULINGS GUJARAT, ruled as follows :- Service provided by M/s. Shreenath Polyplast Pvt. Ltd. (GSTIN 24AACCS9788C1Z3) by way of extending short term loans in so far as the consideration is represe....
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....because of service of credit provided by a DCA as he extends guarantee of the credit to the buyer which has essential component of service in facilitating the supply of goods. Section 15(2)(d) of the CGST Act, 2017 has been referred and it is submitted that the interest charged by the DCA for delayed payment is nothing different and exclusive, but is by reason of and in connection with the transaction of supply of goods, therefore such interest or late fee or penalty for delayed payment to the DCA is in connection with the transaction and by reason of the transaction and cannot be excluded from the value of taxable supply, in simple words, cannot escape taxability. 7.3 It is submitted that the above grounds of appeal are in consonance with the clarification given vide Para 2(iii) of Office Memorandum dated 05.09.2017 issued by the GST Policy Wing (F.No. 349/40/2017-GST). 8. It is further submitted that the applicant in the instant case is DCA who carried on the business of supply or receipt of goods or service or both on behalf of another i.e. the principal. Further, it is immaterial whether the supply of goods is directly by the principal to the customer or third party is involv....
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....gainst the aforesaid appeal. 12.1 It is submitted that the provisions of Section 15(2)(d) of the CGST Act, 2017 are already discussed by the AAR in its Order and it has rightly and correctly been held that the interest received by the applicant is a consideration towards loan extended to the customer and such interest is not towards the payment of consideration for supply of goods by the Principal to the customers, which AAR has already observed, is a separate transaction. It is submitted that Section 15(2)(d) provides that the interest or late fee or penalty should flow to the supplier of goods as what is contemplated to be included in the taxable value is interest or late fee or penalty for delayed payment of any consideration for any supply, whereas in this case the interest does not flow to the supplier and the supplier gets his payment on time, tax is discharged. 12.2 It is submitted that in the grounds of appeal, the DCA has been considered as supplier of goods, whereas in the case on hand, the DCA is an intermediary between the principal and the customer. The role of the DCA is to receive orders for goods on behalf of the principal and take the guarantee of timely payment ....
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....in time, he would have borrowed money from bank and bank would charge interest. The interest charged by the bank could not be considered towards delayed payment and could not be charged to GST by including in the taxable value of supply made by the principal. So is the case in hand. 12.4 It is submitted that the reference to Office Memorandum dated 05.09.2017 issued by the GST Policy Wing (F.No. 349/40/2017-GST Para 2(iii)) for inclusion of interest in taxable value of supply as per section 15(2)(d) is misplaced inasmuch as the said OM refers contract between the broker and client, whereas the broker referred in this OM cannot be equated with DCA. It is further submitted that the content of relevant paragraph placed on record in Review Order (grounds of appeal) is by choose and pick manner as the last line of the said paragraph has not been considered. 12.5 As regards the reference to definition of 'supplier' and 'agent' provided under Section 2(105) and 2(5) of the CGST Act, 2017 in the grounds of appeal, it is submitted that the intention of the reviewing authority is that the supplier includes agent and agent includes DCA and therefore the interest charged by the DCA shall be ....
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....loan, advance and they are charging interest. This interest is subjected to TDS under Income Tax Act also. Therefore, this ground does not hold any water. 12.8 It is also submitted that though the present appeal is filed by the Assistant Commissioner [under Section 100(1) of the CGST Act, 2017], having jurisdiction over the assessee, it is based on the authorization issued by the Principal Commissioner, in exercise of powers conferred under sub-section (2) of Section 107 of the CGST Act, 2017, which is erroneous. It is submitted that such review power under Section 107(2) could be exercised only in cases where the adjudicating authority have passed order and not by Authority for Advance Ruling. Accordingly, the authorization to file appeal against the decision of the AAR given under Section 107 would be void and by this reason alone, the appeal is liable to be dismissed. 13. In view of the above submissions, the applicant inter-alia requested to uphold the ruling passed by the Gujarat AAR and dismiss the appeal filed by the Assistant Commissioner. 14. During the personal hearing, the representative of the appellant (CGST Department) and the applicant reiterated the written submi....
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....sfer the credit and cannot be taken as revenue neutral as it is against the basic principal of indirect taxation. 17. The applicant M/s. Shreenath Polyplast Pvt. Ltd. also submitted additional submissions, reiterating the submissions already made by them. FINDINGS (As per Ajay Jain) : 18. We have carefully gone through and considered the appeal and written submission filed by the CGST department, written submissions filed by the applicant, submissions made at the time of personal hearing, Advance Ruling given by the AAR and other material available on record. 19.1 The nature of transaction involved in this case, as described by the applicant, may be summed up as follows. The applicant is Del Credere Agent (DCA) appointed by the supplier of goods (principal) and has dual role, the first role is to promote the sale and take orders for goods to be supplied by the principal directly and the second role is to guarantee the principal for the payment of goods supplied. If customers fail to make payment, DCA is required to make the payment to the principal. Normally, Principal takes Bank Guarantee (BG) and / or Security Deposit against which principal assigns certain limit to the DCA i....
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....ferred to as the 'GGST Act, 2017'), it would be useful to reproduce the same. 20.2 The Section 15(2)(d) of the CGST Act, 2017 and the GGST Act, 2017 provides as follows :- "15. Value of taxable supply. - (1) ...... (2) The value of supply shall include - (a) ...... (b) ...... (c) ...... (d) interest or late fee or penalty for delayed payment of any consideration for any supply; and (e) ......" 20.3 Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, provides exemption to supply of various services, as specified in column (3) of the table to the said Notification. Sl. No. 27 of the table to the said Notification provides as follows:- TABLE (1) (2) (3) (4) (5) Sl.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition 27 Heading 9971 Services by way of- (a) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services); (b) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers. N....
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.... the DCA to the principal in case of failure to make payment by the customer is inevitable part of the contract or arrangement of supply of goods through DCA, therefore the interest earned on such activity would be chargeable to GST. 22.1 The issue of applicability of Goods and Services Tax on interest earned by a broker on temporary funding extended to clients towards pay-in obligation has been clarified vide para 2(iii) of Office Memorandum F.No. 349/40/2017-GST dated 05.09.2017 issued by the Central Board of Excise and Customs (now Central Board of Indirect Taxes and Customs), GST Policy Wing, as follows. (iii) Issue : Applicability of GST on Interest earned by a broker on temporary funding extended to clients towards pay in obligations. Comments : Section 15(2)(d) states that value of supply shall include interest or late fee or penalty for delayed payment of any consideration for any supply. If the facility of temporary funding extended to clients forms part of contract between the broker and client, then Interest earned on such an activity should be included under value of supply and chargeable to GST. But if this service is provided as a loan to client then, interest on s....
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.... loan' to the customer and it is contended that the interest charged toward such loan given to the customer will be exempted under S. No. 27 of Notification No., 12/2017-Central Tax (Rate). Though such an argument appears attractive, on close scrutiny, it becomes apparent that there is not much merit in this. In case of direct transaction between supplier and customer, where the customer does not make payment on due date but make delayed payment with interest, the supplier may contend that he has extended the 'short term loan' of equal amount to the customer on due date and interest earned thereon would be exempted under S. No. 27 of Notification No., 12/2017-Central Tax (Rate). Such an interpretation will make the said clause (d) of sub-section (2) of Section 15 ibid otiose. 23.3 The issue may also be looked at from another angle. In case of direct transaction between supplier and customer, where the customer makes delayed payment with interest, the amount of interest would be charged to GST. However, if the contention of the applicant is accepted, then in case of the same transaction through DCA, the customer would make delayed payment with interest to DCA, but interest would no....
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....promote the sale and take orders for goods to be supplied by the principal directly and the second role is to guarantee the principal for the payment of goods supplied. If customers fail to make payment, DCA is required to make the payment to the principal. Normally, Principal takes Bank Guarantee (BG) and / or Security Deposit against which principal assigns certain limit to the DCA in their system. Within that limit, DCA is allowed to place orders of the customers. At the end of the month, for the orders booked through such DCA and goods supplied by the principal, DCA gets the commission from principal for which DCA raises invoices on the principal along with GST. 2.2 It was further clarified that the role of the DCA is limited to order booking and ensuring payment to the principal in case of default from the customer. In the entire transaction, neither principal supplies the goods to DCA, nor does DCA supply the goods to customers. Goods are directly supplied by Principal to the customers at the price declared by the principal from time to time by charging applicable GST on the invoice. On the due date, the customer pays to principal directly for the material supplied to them. ....
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....tax would become payable on the amount charged as interest. 3.3 M/s. Shreenath Polyplast Pvt. Ltd. referred to Section 15(2)(d) of the Central Goods and Services Tax Act, 2017 (herein after referred to as the 'CGST Act, 2017) and submitted that the said provision does not apply to the facts of the present matter. They submitted that in the present case, in the commercial practice as explained earlier, DCA is not supplying any goods to the customer but it is the principal who is directly supplying the goods to the customers. Thus, interest charged by DCA from customers is not for delayed payment of consideration of any underlying supply but said interest is charged towards loan given to the customers and hence such interest will be covered under item 27 of the table attached to the impugned notification. 4. The Gujarat Authority for Advance Ruling (herein after referred to as 'the AAR'), vide Advance Ruling No. GUJ/GAAR/R/2018/3 dated 19.02.2018 = 2018 (5) TMI 809 - AUTHORITY FOR ADVANCE RULINGS GUJARAT, ruled as follows :- Service provided by M/s. Shreenath Polyplast Pvt. Ltd. (GSTIN 24AACCS9788C1Z3) by way of extending short term loans in so far as the consideration is represen....
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....ecause of service of credit provided by a DCA as he extends guarantee of the credit to the buyer which has essential component of service in facilitating the supply of goods. Section 15(2)(d) of the CGST Act, 2017 has been referred and it is submitted that the interest charged by the DCA for delayed payment is nothing different and exclusive, but is by reason of and in connection with the transaction of supply of goods, therefore such interest or late fee or penalty for delayed payment to the DCA is in connection with the transaction and by reason of the transaction and cannot be excluded from the value of taxable supply, in simple words, cannot escape taxability. 7.3 It is submitted that the above grounds of appeal are in consonance with the clarification given vide Para 2(iii) of Office Memorandum dated 05.09.2017 issued by the GST Policy Wing (F.No. 349/40/2017-GST). 8. It is further submitted that the applicant in the instant case is DCA who carried on the business of supply or receipt of goods or service or both on behalf of another i.e. the principal. Further, it is immaterial whether the supply of goods is directly by the principal to the customer or third party is involve....
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....inst the aforesaid appeal. 12.1 It is submitted that the provisions of Section 15(2)(d) of the CGST Act, 2017 are already discussed by the AAR in its Order and it has rightly and correctly been held that the interest received by the applicant is a consideration towards loan extended to the customer and such interest is not towards the payment of consideration for supply of goods by the Principal to the customers, which AAR has already observed, is a separate transaction. It is submitted that Section 15(2)(d) provides that the interest or late fee or penalty should flow to the supplier of goods as what is contemplated to be included in the taxable value is interest or late fee or penalty for delayed payment of any consideration for any supply, whereas in this case the interest does not flow to the supplier and the supplier gets his payment on time, tax is discharged. 12.2 It is submitted that in the grounds of appeal, the DCA has been considered as supplier of goods, whereas in the case on hand, the DCA is an intermediary between the principal and the customer. The role of the DCA is to receive orders for goods on behalf of the principal and take the guarantee of timely payment re....
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.... time, he would have borrowed money from bank and bank would charge interest. The interest charged by the bank could not be considered towards delayed payment and could not be charged to GST by including in the taxable value of supply made by the principal. So is the case in hand. 12.4 It is submitted that the reference to Office Memorandum dated 05.09.2017 issued by the GST Policy Wing (F.No. 349/40/2017-GST Para 2(iii)) for inclusion of interest in taxable value of supply as per section 15(2)(d) is misplaced inasmuch as the said OM refers contract between the broker and client, whereas the broker referred in this OM cannot be equated with DCA. It is further submitted that the content of relevant paragraph placed on record in Review Order (grounds of appeal) is by choose and pick manner as the last line of the said paragraph has not been considered. 12.5 As regards the reference to definition of 'supplier' and 'agent' provided under Section 2(105) and 2(5) of the CGST Act, 2017 in the grounds of appeal, it is submitted that the intention of the reviewing authority is that the supplier includes agent and agent includes DCA and therefore the interest charged by the DCA shall be in....
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....an, advance and they are charging interest. This interest is subjected to TDS under Income Tax Act also. Therefore, this ground does not hold any water. 12.8 It is also submitted that though the present appeal is filed by the Assistant Commissioner [under Section 100(1) of the CGST Act, 2017], having jurisdiction over the assessee, it is based on the authorization issued by the Principal Commissioner, in exercise of powers conferred under sub-section (2) of Section 107 of the CGST Act, 2017, which is erroneous. It is submitted that such review power under Section 107(2) could be exercised only in cases where the adjudicating authority have passed order and not by Authority for Advance Ruling. Accordingly, the authorization to file appeal against the decision of the AAR given under Section 107 would be void and by this reason alone, the appeal is liable to be dismissed. 13. In view of the above submissions, the applicant inter-alia requested to uphold the ruling passed by the Gujarat AAR and dismiss the appeal filed by the Assistant Commissioner. 14. During the personal hearing, the representative of the appellant (CGST Department) and the applicant reiterated the written submiss....
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....er the credit and cannot be taken as revenue neutral as it is against the basic principal of indirect taxation. 17. The applicant M/s. Shreenath Polyplast Pvt. Ltd. also submitted additional submissions, reiterating the submissions already made by them. FINDINGS (As per Dr. P.D.Vaghela) : In Appeal of Assistant Commissioner, CGST, Div-7 (case of M/s. Shreenath Polyplast Pvt. Ltd) 18 I have carefully gone through and considered the appeal and written submission filed by the Assistant Commissioner, CGST, Division-VII (Satellite), Ahmedabad-South, written submissions filed by the applicant, submissions made at the time of personal hearing, Advance Ruling given by the AAR and other material available on the record. I have also considered the application dated 24/07/18 of M/s. Shreenath Polyplast Pvt. Ltd for grant more time and asked to file reply immediately. 19. The Assistant Commissioner, Central Goods and Services Tax, Division - VII (Satellite), Ahmedabad - South Commissionerate (Jurisdictional Officer) has submitted before this authority that the Del Credere Agent is not only agent but also a guarantor of credit extended to the buyer (recipient). A single transaction of supp....
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....tile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another. 20.2 The key elementas emerges from the definition is that the supply or receipt of the goods or services has to be undertaken by the agent on behalf of the principal. 20.3 Further, the two limbs of any supply under GST are "consideration" and "course or furtherance of business". Where the consideration is not extant in a transaction, such transactions do not fall within the ambit of supply. But, in certain scenarios, as elucidated in Schedule I of the CGST Act, the consideration is not required to be present for treating certain activities as supply. One such activity which has been detailed in para 3 of Schedule I (hereinafter referred to as, "the said entry") is reproduced here: 3. Supply of goods- (a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or (b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal. 20.4 Here also, it is worth noticing that all the activities between the principal and the agent and vice versa do not fal....
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....f extending loans or advances i.e. transaction in money. 21. The second objection raised by the appellant is that the AAR has not taken into account the provisions of Section 15(2)(d) of the CGST Act, 2017. Section 15 (2) (d) of the CGST Act, 2017 has been referred and it is submitted before the authority that the interest charged by the DCA for delayed payment is nothing different and exclusive, but is by reason of and in connection with the transaction of supply of goods. It is further submitted by the appellant that such interest or late fee or penalty for delayed payment to the DCA is in connection with the transaction and by reason of the transaction and cannot be excluded from the value of taxable supply, in simple words, cannot escape taxability. It is also submitted that DCA is nothing but a supplier acting on behalf of the supplier (principal) and therefore whatever consideration is received by the DCA acting on behalf of the supplier (principal) is consideration, represented by way of interest or discount, is not exempted and same is subjected to GST under the CGST Act, 2017 and the same required to be added in the value of supply as provided under Section 15(2)(d) of th....