GST on Interest under Annuity Model: AAR Holds Deferred Payment Interest Taxable as Part of Supply Value u/s 15(2)(d) [Read Order]
AAR ruled that interest on deferred annuity payments under the Hybrid Annuity Model is taxable under Section 15(2)(d) GST at the same rate and classification as the principal road works contract.
GST - Annuity - Model - Taxscan
GST - Annuity - Model - Taxscan
The Maharashtra bench of the Authority for Advance Ruling (AAR) involved an application by Shenwa Infrastructure Private Limited, seeking clarity on the GST implications of interest received on deferred payment in Equated Yearly Installments (EYI) as per the tender terms under the Annuity Model. The applicant specifically sought a ruling on whether such interest is liable to GST, and if so, the classification and applicable rate of GST.
The application was made under Section 97 of the Central Goods and Services Tax Act, 2017, and the Maharashtra Goods and Services Tax Act, 2017.
The applicant, Shenwa Infrastructure Private Limited, entered into a concessionaire agreement with the Public Works Department, Government of Maharashtra, on a Hybrid Annuity Basis for road construction.
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Under the agreement, 60% of the bid project cost (BPC) is paid in five equal installments during the construction period, while the remaining 40% is paid after construction is complete, as an annuity in 20 biannual installments over 10 years, inclusive of interest as stipulated in the tender.
The applicant emphasized that Section 15 of the GST Act states that the value of a supply shall include interest or late fee, or penalty for delayed payment of any consideration for any supply. On this basis, the applicant argued that the interest received is indeed part of the value of the supply and is taxable at the same rate as applicable to the supply made.
The jurisdictional officer agreed and clarified that as the annuity payable by National Highways Authority of India (NHAI) to the concessionaire also includes some interest component, the amount of such interest shall also be includible in the taxable value for payment of tax on the said annuity, in view of the provisions of section 15(2)(d) of the CGST Act. The circular, thus, supports treating the interest portion as part of the taxable value.
The Authority analyzed the concessionaire agreement provisions in detail, noting that the applicant is entitled to the balance 40% of the project cost in biannual installments with interest after completion.
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The bench comprising D.P. Gojamgunde (State Member) and Priya Jadhav (Central Member) stated, “With all these proceedings, we have to find out whether interest receivable is a part of taxable supply.” Referring to Section 15(2)(d) of the GST Act, the Authority observed that the value of supply shall include interest or late fee, or penalty for delayed payment of any consideration for any supply.
The Authority concluded that the amount of interest shall also be includible in the taxable value for the purpose of payment of tax on the said annuity installment in view of the provisions of section 15(2)(d). The ruling was thus clear that interest on deferred payment received in equated yearly installments under the annuity model is liable to GST as part of the value of supply under the Act.
The Authority further ruled that service is classified the same as that of the original taxable supply of services of construction of roads and maintenance, and the applicable rate of GST shall be the same as that of the original taxable supply. This means the interest is taxed at the same rate and under the same service classification as the road works contract itself.
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