Receipt of penal charges by finance companies on delayed payment of EMIs would be receipt of amounts for tolerating act of their customers for having delayed/defaulted on their EMI payments within due dates and, same would definitely be a ‘supply’ under GST Act
Amount or quantum which is consideration in form of penal charges received by applicant-finance company is compensation only for tolerating act of default or situation of default by their customers and is not additional interest as claimed by applicant.
Thus, consideration if any as received by applicant would clearly qualify as supply as per Sr. No. 5(e) of Schedule II of CGST Act and is, therefore, taxable under GST Act
Video Explanation of Judgment
AUTHORITY FOR ADVANCE RULINGS, MAHARASHTRA
Bajaj Finance Ltd., In re
ORDER NO. GST/ARA/22/2018-19/B-85
AUGUST 6, 2018