The Telangana Bench of Authority for Advance Ruling ( AAR ) in its recent ruling in the case of M/s. Hyderabad Metropolitan Water Supply and Sewerage Board has held that payment of equated yearly installment and interest on delayed payment to a contractor is liable to GST.
Facts of the case:
The applicant M/s. Hyderabad Metropolitan Water Supply and Sewerage Board (HMWS&SB) 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.
Issues on which ruling was sought:
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?
The authorized representatives of applicant reiterated their averments that they are making payments to supplier of works contract services in a staggered manner over period of seven years. They are also making payment of interest to the supplier of service on this spread over payments. Further, submitted that they are desirous of ascertaining whether the interest forms part of taxable value.
Order of AAR:
The AAR noted that 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.
In view of the above discussion, the Coram of Sri B. Raghu Kiran, IRS, Additional Commissioner (Central Tax), and Sri S.V. Kasi Visweswara Rao, Additional Commissioner (State Tax) have held that all the monies paid to the contractor by the applicant including the interest on delayed payments is liable to tax. Further, they held that Interest is part of the consideration as per the valuation rules. Therefore no separate classification exists.
READ / DOWNLOAD ORDER:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
