GST applicable on cheque bouncing charges
To summarise, the exemption for financial transactions under GST laws is only in respect of the interest/discount earned or paid for loans, deposits or advances. If the transaction, as in the subject case deviates from the above, i.e. the consideration not being an interest or discount, the exemption is not available. In the subject case the amount of bounce charges cannot be said to be penalty imposed on by the applicant. It is recovered/imposed only because the client has dishonoured the cheques issued by them towards payment of EMI. Dishonour of cheques i.e. a mode of repayment to the applicant by their customers, is an act which results in delay of receipt of repayments to the applicant.
This delay is an act done by their customers which is tolerated by the applicant because inspite of such dishonour the applicant proposes to continue the agreement with the defaulting party. Thus, the recovery of bounce charges is made in view of toleration of the act of the client by the applicant and therefore construes as ‘supply’ as per as per Sr. No. 5(e) of Sch. II of the CGST Act and is therefore taxable under the GST Act.
AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA
Bajaj Finance Ltd., In re
ORDER NO. GST-ARA-21/2018-19/B-84
AUGUST 6, 2018
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