2024-VIL-1234-KER
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SGST High Court Cases

GST - Chit Funds, Interest, Consideration for supply – Petitioner, engaged in the business of conducting chits, challenge the show cause notice alleging that the interest received from defaulting subscribers to the chits should be subject to GST - Whether the show cause notice issued by the CGST authorities is without jurisdiction – HELD - the relationship between a chit subscriber and a chit foreman is a contractual obligation which creates a debt on the day of subscription. On default, the foreman is entitled to recover the consolidated amount of future subscriptions from the defaulting subscriber in a lump sum. Therefore, the interest received by the foreman from the defaulting subscribers would not be subject to GST, as per the provisions of Notification No. 12/2017-Central Tax (Rate), which provides for a nil rate of tax on transactions by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount – Further, the provisions of Section 15(2) of the CGST Act, 2017 makes it abundantly clear that when interest or late fee or penalty is not on account of delayed payment of any consideration for supply the said amount of interest, late fee or penalty would not partake the nature of consideration for supply - in so far as interest is concerned, the amount charged as interest takes colour from the principal amount upon which such interest is charged and it has no independent existence. In the facts of the present case, the Revenue has no case that the payment of subscription by a subscriber is payment for services rendered by the foreman. Therefore, any interest charged by the foreman on account of delayed payment of subscription cannot partake the nature of consideration for the supply of services – in the instant case, the show cause notice is confined to the interest received from the defaulting subscribers. In such circumstances, it is held that the amount of interest received by the foreman of a chit on defaulting subscriptions cannot be said to be amounts received as consideration for the supply of services – the show cause notices are without jurisdiction and set aside – the writ petition is allowed - Entertainability of writ petition on the ground of availability of an alternate remedy – HELD - where the proceedings are challenged as being without jurisdiction, the availability of an alternate mechanism for resolution of disputes is no ground for the Court to refuse to exercise its jurisdiction under Article 226 of the Constitution - the contention of Revenue that the writ petition is not maintainable due to the availability of an alternate remedy, is rejected.
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