The Authority of Advance Ruling (AAR) in Karnataka has ruled that, Goods and Services Tax ( GST ) is applicable on delayed payment by Share Broker from Customers for Trading in Securities.
The present application has been filed by M/S Indo Thai Securities Limited under section 97 of The Central Goods and Service Tax Act, and Madhya Pradesh Goods and Service Tax Act 2017. And the Authority for Advance Ruling –Madhya Pradesh held that the applicant contended that the additional amount charged is interested in nature but having regard to the nature of transaction it cannot be said that the share broker has extended any deposit, loans or advances to its clients, hence the additional amount being charged cannot be treated as interest and the exemption under entry No 27 of notification no:12/2017 of CGST cannot be applied on the transaction
The brief fact of the case is that the applicant is a registered stockbroker dealing in purchase/sale of securities for and on behalf of its clients and charges brokerage for its activities. The applicant charges an additional amount from its customers for the delayed payment. The amount on which delayed payment is charged consists of the cost of securities and brokerage. Interest charged on the cost of securities is exempt under central tax is amended. And the question in consideration is about the liability of tax on such additional amount charged on delayed payment from customers.
The applicant submitted that they acquire/sells securities and on behalf of clients and charges brokerage for its activities, securities are neither goods nor services under GST law. But brokerage is basically facilitating or arranging transactions in securities and thus services under section 2(102) of CGST Act 2017. When the company acquires securities for clients, the total due amount is amount towards the cost of securities and brokerage on such transaction. They charge interest from its customers for the delayed payment. The amount on which delayed payment is charged consists of the cost of securities and brokerage. Interest charged on the cost of securities is exempt under central tax is amended. Liability of tax shall be exempted on such interest charged on delayed payment from customers.
The advance ruling authority comprising of members Rajiv Agarwal and Manoj Kumar Choubey held that, applicants contention delay payment, the additional amount charged is interest in nature but having regard to the nature of transaction it cannot be said that the share broker has extended any deposit, loans or advances to its clients, hence the additional amount being charged cannot be treated as interest. By virtue of section 15(2) (d) of the Act the interest, late fee or penalty charged from customers shall be added to the transaction value and hence shall be taxable at the rate at which such goods and services are taxable. The additional amount being charged in the delay of payment by whatsoever name called should be classified as principal supply and the classification of the same cannot differ from the original supply. Hence the additional amount being charged cannot be termed as interest and the exemption under entry No 27 of notification no: 12/2017 of CGST cannot be applied on the transaction on which advance ruling is sought.
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