Page 94 - GSTL_20th August 2020_Vol 39_Part 3

308 GST LAW TIMES [ Vol. 39
or obligation) but does not include any service fee or other charge in respect of the moneys
borrowed or debt incurred or in respect of any credit facility which has not been utilised’.
Further this matter has also been discussed in detail in the Circular No.
102/21/2019-GST issued on 28th June, 2019, the relevant extracts are being pro-
duced here :-
Generally, following two transaction options involving EMI are prevalent
in the trade :-
Case - 1 : X sells a mobile phone to Y. The cost of mobile phone is
Rs. 40,000/-. However, X gives Y an option to pay in instalments.
Rs. 11,000/- every month before 10th day of the following month,
over next four months (Rs. 11,000/- *4 = Rs. 44,000/-). Further, as
per the contract, if there is any delay in payment by Y beyond the
scheduled date, Y would be liable to pay additional/penal interest
amounting to Rs. 500/-per month for the delay. In some instances,
X is charging Y Rs. 40,000/- for the mobile and is separately issuing
another invoice for providing the services of extending loans to Y,
the consideration for which is the interest of 2.5% per month and an
additional/penal interest amounting to Rs. 500/-per month for each
delay in payment.
Case - 2 : X sells a mobile phone to Y. The cost of mobile phone is
Rs. 40.000/-. Y has the option to avail a loan at interest of 2.5% per
month for purchasing the mobile from M/s. ABC Ltd. The terms of
the loan from M/s. ABC Ltd. allows Y a period of four months to
repay the loan and an additional/penal interest @ 1.25% per month
for any delay in payment.
As per the provisions of sub-clause (d) of sub-section (2) of section 15 of the
GST Act, the value of supply shall include “interest or late fee or penalty for
delayed payment of any consideration for any supply”. Further in terms of
Sl. No. 27 of notification No. 12/2017-Central Tax (Rate), dated the 28-6-
2017 “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)” is exempted.
Accordingly, based on the above provisions, the applicability of GST in
both cases listed would be as follows :
Case 1 : As per the provisions of sub-clause (d) of sub-section (2) of
section 15 of the CGST Act, the amount of penal interest is to be in-
cluded in the value of supply transaction between X and Y is for
supply of taxable goods i.e. mobile phone. Accordingly, the penal
interest would be taxable as it would be included in the value of the
mobile, irrespective of the manner of invoicing.
Case 2 : The additional/penal interest is charged for a transaction
between Y and M/s. ABC Ltd., and the same is getting covered un-
der Sl. No. 27 of notification No. 12/2017-Central Tax (Rate), dated
28-6-2017. Accordingly, in this case the ‘penal interest’ charged
thereon on a transaction between Y and M/s. ABC Ltd. would not
be subject to GST, as the same would not be covered under notifica-
tion No. 12/2017-Central Tax (Rate), dated 28-6-2017. The value of
supply of mobile by X to Y would be Rs. 40,000/-for the purpose of
levy of GST.”

GST LAW TIMES  20th August 2020  94