The Telangana Bench of Authority for Advance Ruling recently comprising of members B. Raghu Kiran and S.V. Kasi Visweswara Rao, ruled that payment of Equated Yearly Instalments made under Annuities Model, including interest on delayed payments made to a contractor, is exigible to GST.
Facts of the case:
The applicant M/s. Hyderabad Metropolitan Water Supply and Sewerage Board is making payments to the contractors in equated yearly installment manner where in such equated yearly installment consists of both principal amount and interest on such delayed payment. The applicant is desirous ascertaining their liability on payment of GST on interest for delayed payment.
Questions raised:
1. HMWS&SB being local authority, is payment of Equated Yearly Installment (which includes Principal and Interest) under Annuities Model is liable for payment of GST or Not? If Yes Classification of service and applicable rate of GST payable?
2. Applicability of Entry No. 3 of the Notification Number 12/2017 - Central Tax (Rate), dt: 28th June, 2017 for payment of interest included in Equated Yearly Installments under Annuities Model, being payment of interest is a Pure Service?
Submission by the parties
The representative for the Applicant submitted before the AAR that:
1. That they are making payments to supplier of works contract services in a staggered manner over period of (7) years. They are also making payment of interest to the supplier of service on this spread over payments.
2. They are desirous of ascertaining whether the interest forms part of taxable value.
Discussion & Findings:
The AAR observed that the clause (d) of sub section 2 of Section 15 clearly states that the value of supply shall include interest or late fee or penalty for delayed payment of any consideration for any supply. Therefore all the monies paid to the contractor by the applicant including the interest on delayed payments is liable to tax under CGST Act, 2017 under this provision.
The AAR further observed that jnterest is part of consideration as per the valuation rules discussed above and therefore no separate classification exists.
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