GST is liable to be paid on monetary value of interest free deposit made

Categories: Advance Ruling
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Facts:

M/s Rajkot Nagarik Shahkari Bank Ltd. (“the Applicant”) is multi-state Schedule Co-operative Bank registered under GST. The Applicant is providing various services under the category of Financial and Related Services classifiable under SAC 997112, 997113, 997119, 997139, 997159 & 997161 and is accordingly discharging its GST liability.

The Applicant is inter alia also running three schemes for the De-mat account holder namely Basic Service De-mat Account (as prescribed under circular dated 27-08-2012 by SEBI), Rajkot Nagarik Investor Scheme and Rajkot Nagarik Free Scheme.

None of the such schemes are comparable with each other and each scheme has its own merits and benefits. It is also an admitted fact that in Rajkot Nagarik Free Scheme, account holder is getting some free services only because he is depositing some specified amount, interest-free, as security.

The Applicant, while working under the erstwhile provisions of Service tax had dispute with the department on the amount received as Refundable interest free deposit and the free services provided to such account holders and hence the Applicant is desirous to obtain Ruling on the said issue to avoid future litigation as also the GST liability.

Issues involved:

The Applicant is before the Authority for Advance Ruling for getting clarity on the following queries:

  1. Whether Refundable interest free deposit received could be treated as Supply under the provisions of the CGST Act, 2017 (“CGST Act”) and chargeable to tax in the hands of the Applicant?
  2. Whether the amount of Rs. 2500/- being Refundable interest free deposit, which allows depositor some benefits, would attract GST?
  3. Whether first 10 free transactions subject to maximum of Rs. 5 Lakh allowed to the De-mat account holder depositing Refundable interest-free deposit would attract GST?

Applicant’s contention:

The Applicant submits that the Hon’ble Government after introduction of the GST has clarified that on free supply of either goods or services, no tax would be payable.

The Refundable interest free deposits received is not a consideration for allowing any benefit under the said scheme in as much as the said amount is refundable at any time and hence since this amount is not consideration, it doesn’t fall within the definition of ‘supply’.

The applicant submits that to attract GST the transactions should be treated as supply as defined under the provisions of Section 7 of the CGST Act and one of the important criteria is that there should be consideration. Admittedly the Refundable Interest Free Deposits received is not a consideration for allowing any benefit under the said scheme in as much as the said amount is refundable at any time. However, while refunding such amount some amount is deducted being process charge on which the applicant is discharging GST.

Further, attention of the AAR Authority drawn to see for considering any supply as taxable the criteria prescribed are to be fulfilled and one of such criteria is that the supply should be supported by consideration. It is also clarified that only the supplies, without consideration, specified in Schedule I to the CGST Act/ Gujarat Goods and Services Tax Act, 2017 (“GGST Act”) comes within the scope of supply and are accordingly chargeable to tax.

Admittedly, the transactions under consideration are not covered by Schedule I and hence cannot be treated as supply under the provisions of CGST Act and consequently GST is not applicable and such transactions are not liable to GST.

Observation and Findings

The Authority for Advance Ruling vide Order No. GUJ/GAAR/R/9/2019 dated May 15, 2019 observed as under:

Q.1 Whether Refundable Interest Free Deposit received could be treated as Supply under the provisions of CGST Act and chargeable to tax in the hands of the Applicant?

Observation: Refundable Interest Free deposit received cannot be treated as supply. It appears that the Applicant wants to know whether services provided by the Applicant against the Refundable Interest Free Deposit could be treated as supply and chargeable to tax. Deposit is excluded from definition of the consideration by the proviso to Section 2(31) of CGST & GGST Act, 2017.

However, the notional interest/monetary value of the act of providing refundable interest free deposit will be considered as consideration. It is observed that, it is covered in both the limbs of the definition of consideration.

  1. “Any payment made or to be made, whether in money or otherwise”. It is included in the phrase “or otherwise”.
  2. “the monetary value of any act or forbearance” It is included in the phrase “the monetary value of any act”

Further, it appears that the Refundable Interest Free Deposit are an additional commercial consideration to cover risk of the De-mat account. It appears that the main purpose of the deposits is not only security but also collection of capital. It is also not out of place to mention that the said services were chargeable to Service Tax under the erstwhile provisions of Service Tax era. GST related provisions are also broadly pari materia so far as services are concerned.

In view of the above discussion, the monetary value of the act of providing refundable interest free deposit is the consideration for the services provided by the Applicant and therefore the services provided by the Applicant can be treated as supply and chargeable to tax in the hands of the Applicant.

Ruling: The monetary value of the act of providing refundable interest free deposit is the consideration for the services provided by the Applicant and therefore, the services provided by the applicant can be treated as supply and chargeable to tax in the hands of the Applicant.

Q.2 Whether the amount of Rs. 2500/- being Refundable interest free deposit, which allows depositor some benefits, would attract GST?

Observation: It appears that the amount of Rs. 2500/- will not attract the GST being the deposit unless the supplier applies such deposit as consideration. However, the monetary value of the act of providing this deposit of Rs.2500/- will attract GST.

Ruling: The amount of Rs. 2500/- will not attract the GST but the monetary value of the act of providing this deposit will attract GST.

Q.3 Whether first 10 free transactions subject to maximum of rupees 5 Lakh allowed to the De-mat account holder depositing Refundable interest free deposit would attract GST?

Observation: It appears from the above that the first 10 free transaction allowed to the De-mat account holders are in the nature of discount and will not attract GST subject to the fulfilment of the conditions prescribed under Section 15(3) of the CGST & GGST Act, 2017.

Ruling: The first 10 free transaction allowed to the De-mat account holder are in the nature of discount and will not attract GST subject to the fulfilment of the conditions prescribed under Section 15(3) of the CGST & GGST Act 2017.

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