Interest on Delayed Payment for Supply of Services Included in Value of Supply & Liable to GST: AAR [Read Order]

The West Bengal Authority for Advance Ruling (AAR) has held that interest on delayed payment for supply of services shall be included in the value of Supply making it liable to Goods and Services Tax (GST).

The ruling came in response to an application submitted by Ganga STP Project Private Limited, a company involved in sewage treatment plant development under the Hybrid Annuity Model (HAM).

The applicant sought an advance ruling on whether the interest charged on 60% of the capital expenditure (Capex), payable over and above the consideration value, at a rate linked to State Bank of India’s Marginal Cost of Funds Based Lending Rate (SBI MCLR), would attract GST.

The applicant had entered into a contract with the National Mission for Clean Ganga (NMCG) and Kolkata Metropolitan Development Authority (KMDA) for a water treatment project as a part of the Namami Gange Program. Under the HAM model, 40% of the Capex was to be paid by NMCG during the construction period, while the remaining 60% of the Capex would be paid to the company in 60 equal quarterly installments over 15 years, along with interest linked to SBI MCLR.

The issue raised before the authority was whether the interest component on delayed payment would constitute a part of the consideration for the project and be subject to GST.

The applicant, represented by Boudhayan Bhattacharyya and Stuti Bansal argued that the interest payments by KMDA were meant to compensate for the loss incurred due to the delayed payment of the 60% Capex.

It was also contended that this interest component, linked to SBI MCLR, reflected the time cost associated with the delayed payments. Moreover, since the payment was in the form of an annuity over an extended period after project completion, it should not be considered as part of the value of supply for GST purposes.

During the personal hearing, the applicant acknowledged that GST would be calculated and determined on the interest quantum received as payments.

The AAR highlighted Section 15 of the Central Goods and Services Tax (CGST) Act, 2017 which deals with the value of taxable supply. As per Section 15(2)(d) of the CGST Act, the value of supply includes “interest or late fee or penalty for delayed payment of any consideration for any supply”.

The authority observed that under the terms of the contract, KMDA has agreed to pay interest for delayed payment against the supply of services.

The two-member bench of the authority comprising Tanisha Dutta (CGST Member) and Joyjit Banik (SGST Member) concluded that the interest component is a part of the consideration value and shall be included in the value of supply as per Section 15(2)(d) of the CGST Act. Consequently, GST shall be applicable to the interest component received by the applicant as payments.

To Read the full text of the Order CLICK HERE

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