Cheque bouncing charges- GST would be
applicable: AAR
Cheque bouncing charges- GST would be
applicable: AAR
[Maharashtra v. Bajaj Finance Limited – [2018]
Recently AAR passed and judgment that GST would be applicable in case if your cheque will get bounce. Also AAR passed the unexpected judgment that Penal interest is also liable for GST. For details you can refer an article—” Liquidity Crunch in Banking Sector” on our website.
Facts of the case:
- The applicant means Bajaj Finance Limited(BFL), a NBFC is engaged in providing various types of loans to the customers, such as auto-loans, loans against the property, personal loans, etc.
- BFL has entered into agreements with borrowers/customers for providing loans to them. According to terms of the agreement repayment of the outstanding dues/EMI can be paid through cheque/ECS/RTGS or any other electronic or clearing mandate.
- In case of dishonouring of payment instrument or instruction, BFL has right to collect the penal or bouncing charges.
- In this case ,Applicant filedthe application for Advance Ruling whether the bouncing charges should be treated as supply?and GST
would be attracted?
- According to BFL bouncing charges collected from the customers are in the nature of penalty or liquidated damages. Therefore, same are not considerations for supply of services and, hence not subject to GST levy.
Held:
The judgment was passed on the basis of following which may lead toargument:
- According to Schedule II, entry-5 of CGST Act, includes services in the scope of supply as “agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act”.
- Thus, it is contended that the receipt of cheque bouncing charges on dishonouring of cheques would be receipt of amounts for tolerating the act of their customers.
- And therefore on cheque bouncing charges GST will attract.