TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 868
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....a group of chit subscribers, say 40 members (subscribers), who are willing to pay, say Rs. 2,500/- per month, say for a period of 40 months (the number of subscribers in a group and the number of months of the chit group, chit period, is normally the same). For gathering chit subscribers, collecting money from each subscriber, conducting monthly chit auctions (to identify the one subscriber who is entitled to the chit (prized) amount) and disbursing the prized amount, the Foreman is entitled to collect a Foreman commission at 5% of the chit value as per Section 21(1)(b) of the Chit Funds Act, 1982. In the above example, the Foreman would be able to commence a chit value of Rs. 1,00,000/- (Rs 2.500 X 40 subscribers) for 40 months and collect foreman commission of Rs 5,000/-15% of Rs. 1,00,000/-) each month.Continuing the example, each subscriber would be required to pay a maximum amount of Rs. 2,500/- for 40 months and each of the 40 subscribers (identified by lot or chit auction) would be entitled to receive, by turns, the prized chit amount. Since each subscriber is entitled to receive a maximum prized money of Rs. 95,000/-(Rs. 1,00,000 of chit value, minus, foreman commission of ....
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....o. 12/2017-CT(Rate), dated 28.06.2017, contends that the interest collected by a chit fund company from defaulting subscribers is covered by the said entry. He further submits that the amount payable by the defaulting subscribers would have to be treated as a debt and interest payable on such debt would not attract levy of GST. He would further submit that the consideration for service offered by the foreman, for conducting the chit, is paying separately to the foreman and the interest payable on the delayed payment of chit subscription amounts cannot be treated to be part of the consideration paid to the foreman for his services and running the chit. He would submit that both the Authority for Advance Ruling and the Appellate Authority for Advance Ruling had misdirected themselves in this regard. 5. The Authority for Advance Ruling had framed two questions namely:- I. Whether the interest/penalty collected for delay in payment of monthly subscription by the members forms a supply under GST? II. If the said interest/penalty is a supply, what is the classification and rate of duty applicable on the said supply? 6. The authority after considering the objection....
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....taining the Notification. Entry No.27 of that notification exempted services, from payment of GST, on consideration paid for services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discounts. The appellate authority took the view that the exemption set out in the said notification would not be applicable inasmuch as the consideration being paid, on delayed payment of chit installments, cannot be treated as interest in view of the definition of the interest set out in the said notification itself. Consideration of the Court:- 8. Under the Notification No.11 of 2017, dated 28.06.2017, the consideration paid for services provided by a foreman of a chit fund, in relation to chit, is exigible to tax. The relevant entry Sl.No.15 reads as follows:- "(i) Services provided by a foreman of a chit fund in relation to chit. Explanation.- (a) "chit" means a transaction whether called chit, chit fund, chitty, kuri, or by whatever name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain ....
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....rize amount or the amount of future subscriptions under sub-section (1), and the deposit of the prize amount under sub-section (2), shall be intimated to the subscribers at the next succeeding draw and the particulars of such payment or deposit shall be entered in the minutes of the proceedings of that draw. (4) The foreman shall not appropriate to himself any amount in excess of what he is entitled to under clause (b) or clause (c) of sub-section (1) of section 21: (emphasis added) Provided that where the foreman is himself a prized subscriber, he shall be entitled to appropriate to himself the prize amount subject to his complying with the provisions of section 31: Provided further that the foreman may appropriate to himself the interest accruing on the amount deposited under the second proviso to subsection (1). (5) The foreman shall not admit any person as a subscriber to a chit, if, by such admission, the total number of tickets mentioned in the chit agreement is increased. (6) The foreman shall distribute among the subscribers, in accordance with the chit agreement, the dividend either in cash, gain or by way of adjustment....
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....foreman, would still be exempt from payment of GST on account of the exemption granted under the Notification No. 12 of 2017. 14. The term "Interest" has been defined in the said Notification is extracted as here under: "Interest" means Interest payable in any manner In respect of any moneys borrowed or debt incurred (Including a deposit, claim or other similar right or obligation) but does not Include any service fee or other charges in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized." 15. The appellate authority, held that even interest and penalty paid on any defaulting payment of installments would have to be treated as a fee in view of the provisions under Section 21 of the Act, 1982. On this basis, the appellate authority, having held that the right to recover of interest and penalty should be read with along the right to payment of commission and remuneration had opined that interest and penalty should be treated as a part of the consideration paid for supply of services and that such interest and penalty would also been exigible to tax. 16. For the purposes of this, it would be necessary to n....
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....wed to the chit foreman and whether such debt could be recovered in case of default in payment of a installment. The Hon'ble Supreme Court of India held that the chit amount paid out to a prized subscriber, is in the nature of grant of a loan and the same can be recovered by the foreman by treating the same as a debt. 19. The Paragraph No.10 of the said Judgment clarifies this issue as here under:- "10. We do not agree with the view expressed by the division bench. When a prized subscriber is allowed to draw the chit amount, which is in the nature of a grant of a loan to him from the common fund in the hands of the foreman, with the concessional facility of effecting repayment in installments; this is subject to the stipulation that the concession is liable to be withdrawn in the event of default being committed in payment of any of the installments. The chit subscriber at the time of subscription, incurs a debt which is payable in installments. If a subscriber is permitted to withdraw the collected sum on his turn, without being bound to pay the future installments, it would jeopardize the interest of all other subscribers, and the entire mechanism of the chit fund sys....