TaxTMI 
TaxTMI 
2019 (12) TMI 1332
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ruling No. GST-ARA-22/2018-19/B-85 dated 06.08.2018 = 2018 (11) TMI 884 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA, which was disposed of vide AAAR Order No. MAH/AAAR/SS-RJ/24/2018-19 dated 24.03.2019 = 2019 (8) TMI 31 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA. However, the Appellant has filed the present application, under section 102 of the CGST Act, 2017 on 13.09.2019 for the rectification of the order dated 14.03.2019, issued by AAAR = 2019 (8) TMI 31 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA. C. The issue involved in the aforesaid appeal relates to the question as to whether the penal interest charged by the Applicants, which is in the nature of interest on loans, from its customers is in the nature of tolerating an act in terms of entry 5 ( e) of Schedule II of the CGST Act, 2017 or whether the same is in the nature of additional interest and is exempt vide Serial No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. BRIEF FACTS OF THE CASE 1. The Appellant is a non-banking financial company and is inter alia engaged in providing various types of loans to the customers such as auto loans, loans against the property, person....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... vide Serial No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. 9. The submissions made by the Applicants in their appeal as well as during the time of the hearing is summarized below for reference: (i) The Applicants are only engaged in the business of lending/financing to customers, and the amount charged as penal interest is nothing, but interest on loans, which is exempt from GST. (ii) In any case, penal interest is liable to be included in the value of main supply under Section 15 (2) (d) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as 'CGST Act'), and therefore, any treatment given to the main supply shall be given to the penal interest, and hence, shall be exempt from GST. (iii) In any case, the penal interest charged by the Applicants is in the nature of penalty or liquidated damages for breach of contract, which does not amount to consideration for any contract, and therefore, there cannot be any supply of service. (iv) Penal Interest charged by the Applicants for the breach of contract by the customer, is not covered under the ambit of Deemed Services under clause (e) of Entry 5 of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the provisions of the law, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby issues the following clarification. Generally, following two transaction options involving EMI are prevalent in the trade: - Case -1: X sells a mobile phone to Y. The cost of mobile phone is Rs. 40, 000/-. However, X gives Y an option to pay in installments, Rs. 11,000/- every month before 10th day of the following month, over next four months (Rs. 11,000/- *4 = Rs. 44,000/-). Further, as per the contract, if there is any delay in payment by Y beyond the scheduled date, Y would be liable to pay additional penal interest amounting to Rs. 500/- per month for the delay. In some instances, X is charging Y Rs. 40, 000/- for the mobile and is separately issuing another invoice for providing the services of extending loans to Y, the consideration for which is the interest of 2.5% per month and an additional/penal interest amounting to Rs. 500/- per month for each delay in payment. Case -2: X sells a mobile phone to Y. The cost of mobile phone is Rs. 40,000/-. Y has the option to avail a loan at interest of 2.5% per month for purchasing the mobile from ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chedule II of the CGST Act i.e. "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act", as this levy of additional/ penal interest satisfies the definition of "interest" as contained in notification No. 12/2017- Central Tax (Rate) dated 28.06.2017. It is further clarified that any service fee/charge or any other charges that are levied by M/s. ABC Ltd. in respect of the transaction related to extending deposits, loans or advances does not qualify to be interest as defined in notification No. 12/2017- Central Tax (Rate) dated 28.06.2017, and accordingly will not be exempt. 7. it is requested that suitable trade notices may be issued to publicize the contents of this circular" 12. The Applicants submit that the present circular issued by the Central Government is merely clarificatory in nature and the same should not be considered as a new fact or information. The Applicants are filing the present application to bring to the notice of this Hon'ble Authority and seek the rectification of the mistake which is apparent from the face of the records available before this Hon'ble Authority. The mistake committed in the Present....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contrary to the true meaning of law and its interpretation is a mistake apparent from the face of record and the same should be rectified. In this regard, the Applicants submit that the Five Member Larger Bench of the Hon'ble CESTAT in the case of Hindustan Lever Ltd. [2008 (10) STR 91 (Tri.- LB)) = 2006 (8) TMI 9 - CESTAT, MUMBAI, had concluded that a subsequent decision of the Hon'ble Supreme Court or any High Court clarifying the true position of the law warrants the re-consideration of an issue and a rectification of mistake application can be filed, provided the same has been filed within the prescribed time limits. The relevant portions of the above decision are reproduced below for reference: "8. The High Court of Madras in V. Guard industries Ltd. = 2003 (11) TMI 82 - HIGH COURT OF JUDICATURE AT MADRAS while considering a similar question in a case where rectification application was made after the judgment of the Supreme Court in Shanuga Traders etc. v. State of Tamil Nadu and Others reported in 114 STC 1 = 1998 (4) TMI 484 - SUPREME COURT, and dealing with the contention that it was not open to the assessee to seek such rectification by placing reliance on a judg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pplication filed under section 102 of the CGST Act, 2017 for the rectification of error in the impugned AAAR order. The applicant, vide their application, have submitted that the impugned AAAR order dated 14.03.2019 needed to be rectified owing to the presence of error, which is apparent from the face of record, as the said impugned ruling is contrary to the Circular No. CBEC-102/21/2019-GST dated 28.06.2019 issued by the CBIC, which clarifies that the transaction of levy of additional/penal interest does not fall within the ambit of entry 5 (e) of Schedule II of the CGST Act, 2017, whereas vide the impugned AAAR order, it was held that Additional/Penal Interest charged by the Applicant from their customer for the delayed payment of EMI would fall under the ambit of entry 5(e) of the Schedule II to the CGST Act, 2017, and hence would be subject to GST. 21. The Applicant further argued that since the aforesaid Departmental Circular is merely clarificatory in nature, and therefore the legal provisions in this regard remain the same. As such no new facts or information have emerged. Since the interpretation drawn in the impugned ruling is contrary to that of the above said Circular....