TaxTMI 
TaxTMI 
2019 (7) TMI 810
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....1,302, RMZ Millenia Business Park, Perungudi, Chennai-600096 (hereinafter called as Applicant or DFSI) is registered in GST vide GSTIN 33AADCD6300J1Z1. They have stated that they are registered with Central Bank of India as a non-banking financial institution engaged in the activities of "Leasing and Finance" which includes operating lease of passenger vehicle and financing of commercial and passenger vehicles to end customers. DFSI also does dealership related financial services like inventory financing for Daimler franchised dealers. The Applicant has sought Advance ruling on the following question Whether the interest subvention income received by Daimler Financial Services India Private Limited (DFSI) from Mercedes-Benz India Private Limited (MB India) to reduce the effective interest rate to the final customer is chargeable to GST? The Applicant has submitted the copy of application in Form GST ARA-01 and also submitted a copy of Challan evidencing payment of application fees of Rs. 5,000/each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017. 2.1 The statement of relevant facts submitted by the applicant is given verbatim below: â€....
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....by MB India on behalf of the customer. Interest subvention income received in a month is in pursuance of the amount of finance provided by the applicant to customers. This should not change only because interest was received from a person other than to whom the financing is made. Recognition of income by the applicant is done over the tenure of the loan provided to the customer and the definition of "interest" uses the phrase 'payable in any manner', meaning it can be paid over a period of time. This is permitted in Ind-AS notified under Companies, Act, 2013. MB India withholds income tax under Section 194A of Income Tax Act, 1951 as interest other than interest on securities. 3.1 The Authorized Representative of the Applicant was heard in the matter on 19.11.2018. They stated that as per the MOU between DFSI and MB India, DFSI charges a lower interest to the customer of MB India. The difference interest amount for each transaction is paid to DFSI by MB India and is received upfront by DFSI who account the amount over the course of the loan in their books. They provided Case laws to clarify the definition of interest and that subsidy given as offset of loss to creditor by third ....
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....m a party other than the borrower represents consideration for the borrowing - that is interest. • The transaction is in the nature of interest due to the following: • Income is received as an outcome of providing loan to the customer. • While the income is received from MB India, consideration can flow from anybody. • Even though the payment for the said income is received upfront, it is amortized over the tenure of the loan. Further the definition of interest uses the term "payable in any manner". • While effecting the payment to DFSI, MB India deducts TDS u/s 194A of the Income Tax Act 1961- TDS on interest other than interest on securities. • Loan agreements with customers also mention the applicable interest rate, the interest subsidy from MB India and the net interest rate payable by the customer. • In Commissioner of Income Tax vs. Vijaya Bank 1989 175 ITR 611 = 1988 (7) TMI 26 - KARNATAKA HIGH COURT, the Hon'ble High Court Of Karnataka held that The subsidy is made to offset a part of the loss incurred by charging a lower rate of interest and hence the payment made by the RBI to the a....
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....ring on 25.02.2019. They appeared before the authority for ruling and stated that interest subvention is nothing but consideration for the loan given to customer, only that some portion of interest is being paid by MB India.; Consideration can flow from third party as per various case laws submitted by them.; this amount qualifies as interest per definition in the notification 12/2017, CGST ACT 2017.; DFSI is a related party to MB India, both have same holding company.; Hence, DFSI does business only with customers buying MB or Daimler Vehicles.; Customers of MB India can get finance from anyone, but only DFSI gives this interest subvention.; The full amount of interest subvention is paid upfront to DFSI but is amortized in the DFSI' s books over a period of the* loan during which period the rest of the amount is shown as liability.; The amount received is shown as 'subsidy income' under 'Revenue from operation'.; They undertook to submit the marketing, advertising material of DFSI for this subvention scheme at dealership of MB India.; Also they undertook to submit documents as to how MB India & DFSI is related. They further stated that the MOU between MB India & DFSI has no consid....
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....heir financials under the head "other Income". 4.1 We have carefully considered the various submissions of DFSI. It is seen that DFSI is a Non-Banking Financial Institution engaged in the activities of 'Leasing and Finance' which includes operating lease of passenger vehicle and financing of commercial and passenger vehicles to end customers. MB India is engaged in manufacture and sale of passenger cars under the brand 'Mercedes - Benz' vehicles and has extensive network of authorized dealerships engaged in sale of MB cars all over India. Customers who purchase MB India cars from authorized dealers may require financing, DFSI acts as the financier and provides loan to customers. It is seen from the MOU dt 25.05.2016 between DFSI and MB India which was renewed till 31.12.2018 that • MB India has nominated DFSI as its preferred financer for financing customers refereed by MB India / its authorized dealers for purchasing Mercedes -Benz vehicles. • DFSI and MB India pursuant to the aforesaid business understanding have agreed to work together to promote and facilitate sale of Mercedes-Benz vehicle to the customers on the terms of this MOU. • DF....
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....er; customer name and amount. 4.2 It is seen from the sample customer agreement that it is an agreement termed as "Mercedes-Benz Financial" between DFSI and the buyer of the vehicle which is manufactured by MB India or Daimler India Commercial Vehicles Pvt Ltd. The interest subsidy is being mentioned as: Applicable Fixed Interest Rate Gross ------------% pa Less: Interest subsidy from MB India-----------% pa. Net Applicable Fixed Interest Rate ----------------%pa. In the sample brochures given to prospective customers by dealers of MB India, it is seen that the finance is offered in the name of "Mercedes- Benz Financial". 4.3 It is seen from the audited profit and loss account of DFSI for 2017-18 and the applicant's letter dt 30.11.2018 the amount received from MB India based on invoice raised by DFSI is shown under 'Revenue from Operations' as 'Subsidy income'. In the audited balance sheet, it is seen that the amount receivable from MB India, treated as 'Receivables towards reimbursement of Cost' under 'Short term loans and advances to related party (unsecured)', is not accounted as income upfront even though the payment is received upfront. Ins....
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.... price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. Section 2 of CGST Act states 2 (31) "consideration" in relation to the supply of goods or services or both includes- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; In the instant case of the agreement titled 'Mercedes-Benz Financial', the rate of interest for this loan is specified in Annexure I to this agreement. The methodology of arriving at this rate of interest is given in the Annexure itself as the 'Net Applicable Fixed Interest Rate' after deducting the 'Applicable Fixed Interest Rate Gross' less the 'Interest subsidy from MB India' (ref Para 4.2). The buyer has to pay the 'Loan Amount' (SI no 3 of (B) Financial details) specified in the Annexure I with interest at the "Rate of Interest per Annum" (Sl.no....
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....al Customer. For this DFSI is obligated to provide better customer luxury experience, structured insurance products offerings with claims processing within minimum turnaround time, tailor made products, quick loan approvals, maintain customer relation etc. to the buyers of MB India's vehicles. AS seen in the invoice and stated in the application, MB India pays the total amount of the 'interest subsidy' once the "Mercedes-Benz Financial" is signed between DFSI and the buyer based on the loan amount in that. The invoice is raised based on each of the buyer who has taken the 'Mercedes-Benz Financial" and the details of the Chassis number and customer name are given to MB India along with the Invoice. DFSI is showing this amount received from MB India as "Revenue from Operations" in the audited financials though the same may be amortized and taken into their books. In this transaction between DFSI and MB India, it is seen that as per the MOU, DFSI is obligated to provide better customer luxury experience, structured insurance products offerings with claims processing within minimum turnaround time, tailor made products, quick loan approvals, maintain customer relation etc. to the....