In the case of Shreenath Polyplast (P) Ltd (2018) 93 taxmann.com 178 (AAR-Gujarat), the Authority for Advance Rulings, Gujarat, held that the interest charged by the Del Credere Agent (DCA) on the amount of short term loans provided to end customers, is covered Exemption Notification 12/2017-Central Tax (rate) dated 28-06-2017 and therefore, exempted from payment of GST.
In this case, the role of Del Credere Agent (i.e. Applicant) was to find the customers for principal supplier of goods for which applicant was getting commission. If in case, the end customer was not in a position to make payment to principal on the due date, he approaches the applicant. The applicant in such case, extends short term loan by making payment to the principal on behalf of the customer and then loan is repaid by the customer along with agreed interest. In certain cases, the customer makes payment of the loan by giving Letter of Credit for 60 / 90 days, interest is payable under this transaction also for the period until Letter of Credit is discounted by the applicant.
It is observed by the AAR, that the extension of loan by applicant to the customers is a transaction separate from the transaction of supply of goods by the principal to the customers for which applicant also gets commission from the principal. Also, the interest received by the applicant is consideration for extended loan to the customers and such interest is not towards the payment of consideration for supply of goods by the principal to the customers.
The exemption notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, provides exemption to supply of various services. The Entry no. 27 of the said notification provides that, the services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount (other than interest involved in credit card services) is exempt from payment of Goods and Services Tax.
The AAR in the present case provided that, the transaction of extension of loan by the applicant to the end customers, the consideration is received by way of interest, the same is covered by the aforesaid Entry No. 27 of Exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, and hence exempted from payment of Goods and Services Tax.
