The Authority for Advance Ruling (AAR), Gujarat has ruled that the amount charged as interest on transaction-based short-term loan given to the buyers of material is exempt from the levy of Goods and Services Tax (GST).
The applicants are Del Credere Agent appointed by the supplier of goods. According to them, they have a dual role, to promote the sale and take orders for goods to be supplied by the principal directly and 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 principal assigns a certain limit to the DCA in their system. Within that limit, DCA is allowed to place orders from the customers. At the end of the month, for the orders booked through such DCA and goods supplied by the principal, DCA gets the commission from the principal for which DCA raises invoices on the principal along with GST.
The authority, while answering the question in favour of the applicant, noted that as per CBEC Notification dated 28.06.2017, services by way of 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) is exempt from payment of Goods and Services Tax.
“As in the transaction of extension of the loan by the applicant, the consideration is received by way of interest, the same is covered by the aforesaid Sl. No. 27 of the table to Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, and hence exempted from payment of Goods and Services Tax,” the authority said.
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