2018 (5) TMI 809 – AUTHORITY FOR ADVANCE RULINGS GUJARAT – 2018 (13) G. S. T. L. 247 (A. A. R. – GST), [2018] 2 GSTL (AAR) 92 (AAR) – Exemption from GST – amount charged as interest – Whether an amount charged as interest on transaction based short term loan given by the Del Credere Agent (DCA) to buyers of material is exempt from tax in terms of the N/N. 12/2017-Central Tax (Rate) dated 28.06.2017? – Held that: – the extension of loan by the applicant (DCA) to the customers is a transaction separate from the transaction of supply of goods by the principal to the customers against consideration wherein the applicant (DCA) also gets the commission from the principal – the interest received by the applicant is consideration towards loan extended to the customers and such interest is not towards the payment of consideration for supply of goods by the principal to the customers, which is a separate transaction.
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As per Sl. No. 27 of the table to N/N. 12/2017-Central Tax (Rate) dated
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sh S. Lakhani The applicant, M/s. Shreenath Polyplast Pvt. Ltd. has raised the following questions for advance ruling – "Whether an amount charged as interest on transaction based short term loan given by the Del Credere Agent (DCA) to buyers of material is exempt from tax in terms of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (Serial Number 27)? 2.1 The applicant has submitted in the application for Advance Ruling that they are Del Credere Agent (herein after referred to as "DCA") appointed by the supplier of goods (herein after referred to as "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 princ
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limited to order booking and guaranteeing payment. Supply of material is directly by the principal to the customer. Any delay in supply or any quality issue, it is principal who directly compensates the customer. DCA does not buy, store or sale any material of principal to any customer and therefore there is no transaction of any purchase or sale of goods in his books. 2.4 It is submitted that in the entire transaction, the maximum interaction buyer of the material has with DCA. Due to this, on some occasions, when the buyer is not in a position to pay to principal on the due date, he approaches DCA to extend short term loan and the loan is extended by the DCA by making payment to the principal on behalf of the customer. The loan is repaid to DCA by the customer along with agreed interest. The rate of interest on such short term transaction based loan (from 10 days to 90 days) is as mutually agreed between buyer of the material and DCA. Sometimes, customer does not make payment to the
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8.06.2017. 3.2 The applicant further submitted that DCA is giving the loan to the buyer and charging the interest thereon from them and accordingly it will be covered under item at serial number 27 of the table attached to the impugned Notification and therefore, no tax would become payable on the amount charged as interest. 3.3 The applicant 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 u
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ted 28.06.2017, or otherwise. 7. In the case of transaction of supply of goods through DCA, the principal supplies the goods to and receives payment from the customers. In case of failure of customer to make payment, the DCA makes payment to the principal. The DCA gets the commission from principal. It is submitted by the applicant that when the buyer is not in a position to pay to principal on the due date, he approaches the DCA, who extends short term loan by making payment to the principal on behalf of the customer and the loan is repaid to DCA by the customer along with agreed interest. It is also submitted that sometimes, customer does not make payment to the DCA and gives Letter of Credit for 60 / 90 days, which DCA gets discounted with the bank and in this transaction also, interest is payable for the period until Letter of Credit is discounted. For interest, DCA raises debit notes on the customers and customers pay interest while repaying the loan amount. 8. We find that the ex
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or supply of goods by the principal to the customers, which, as we have already observed, is a separate transaction. 10.1 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 Sl. No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition (1) (2) (3) (4) (5) 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. Nil Nil 10.2 As per the aforesaid Sl. No. 27 of the table to Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017,
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