Page 93 - GSTL_20th August 2020_Vol 39_Part 3

2020 ] IN RE : USHA BALA CHITS PVT. LTD. 307
It is clear from the simple reading of 15(2)(d) that the interest, late fee or penalty
charged from customer shall be added to the transaction value and hence shall be
taxable at the rate at which such goods/services are taxable or in other words the
classification of interest, late fee or penalty cannot be different from the classifica-
tion of goods or services.
Here in the given case, the applicant is chit company engaged in the ac-
tivity of distribution of prize money to its members and the additional amount is
being collected in the form of interest for delay payment from the members as
consideration as a fixed percentage of transaction value. Having regard to the
trade parlance it is also clear that chit company gives a reasonable time to its cus-
tomer to make the payment however if the customer do not make the payment
within the stipulated time then an additional amount is being charged and it
may be termed as different names i.e. Interest, Late fee or Penalty.
The additional amount being charged on delayed payment termed as In-
terest, late fee or penalty on the amount delayed in specified time cannot be bi-
furcated as such additional payment do not have its own classification. It is taking col-
our from original supply i.e., supply of financial and related services.
Further Section 8 of GST Act, 2017 deals with composite supply -
Sec. 8 - Composite supply means a supply comprises two or more
goods/services, which are naturally bundled and supplied in with each
other in the ordinary course of business, one of which is a principal supply.
In this case financial and related service is the principal supply and all other an-
cillary supplies shall take colours from the principal supply itself and it shall be
classified as principal supplies i.e. financial and related services.
7.2 Applicant’s contention is, on the delay of payment, the additional
amount charged is interest in nature. To qualify the amount as interest, there
must be some specific percentage to be charged on daily/monthly or some peri-
odic basis. Hence the amount charged cannot be qualified as interest.
Here it is necessary to differentiate between the interest, late fee and
penalty.
Interest : interest is charged to compensate for late payment etc. Interest
is charged to compensate for time value of money. Interest is charged at the spec-
ified percentage and cannot be fixed.
Late Fee : Late fee is generally charged as fixed amount on a daily basis
depending on the period of delay.
Penalty : Penalty is levied for something wrong you have done or what
you should have done but could not do so. Penalty can be in absolute as well as
in percentage terms.
Hence the additional amount being charged on delayed payment is in
the nature of penalty which is being charged for the payments which the cus-
tomer has to make within the stipulated time but failed to do so.
Here the Entry No. 27 of Notification No. 12/2017-C.T. (Rate), dated
28th June, 2017 exempt the services by the way of extending deposits, loans or
advances in so far as the consideration is represented by way of interest or dis-
count (other than interest involved in credit card services). Further, interest is
also defined vide Section 2z(k) as means ‘interest payable in any manner in respect of
any moneys borrowed or debt incurred (including a deposit, claim or other similar right

GST LAW TIMES  20th August 2020  93