Name of the Applicant:

Enpay Transformer Components India Private Limited

Application No.:

Advance Ruling No. GUJ/GAAR/R/01/2021

Ruling pronounced by:

GST AAR Gujarat

Date of Ruling:

20-01-2021

Question before Authority:

Whether liability to pay GST on reverse charge arises if amount is paid as interest on late payment of invoices of imported goods? If yes, then at what rates?

Brief Facts:

The applicant is engaged in the business of manufacturing and supplying transformer components. The applicant is importing goods from the holding company located at Turkey for which the payment terms is 120 days from the date of invoice and if there is delay in payment beyond 120 days, the holding company is charging interest on late payment.

Observation by Authority:

• Section 7 of the CGST Act, 2017 covers the expression ‘Supply’. As per section 7(1)(d) of the Act, the activities to be treated as supply of goods or supply of services are covered in Schedule-II of the said Act.
• On referring Entry no. 5(2)(e) of the Schedule-II “Activities to be treated as supply of goods or supply of services”, it is ascertained that “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act” is to be treated as ‘Supply’.
• On-going through the facts, we find that the foreign buyer has tolerated the act of receiving payment after a lapse of 120 days from the date of invoice for which interest is paid by the applicant. We therefore, find that the aforementioned act will be covered under the “Supply” as per Schedule-II of the Act.
• Further, section 15(2)(d) states that “The value of supply shall include- interest or late fee or penalty for delayed payment of any consideration for any supply.”

Ruling:

We conclude that the payment of interest by the applicant will be covered under the supply of services under Entry No. 5(2)(e) of Schedule-II of the CGST Act, 2017 and is liable to GST in view of the provisions of section 15(2)(d) of the said Act.