2025-VIL-1277-AP
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SGST High Court Cases

GST - Applicability of GST on interest and penalty on delayed payment recovered by chit fund company - The petitioner is a chit fund company engaged in the business of running chit schemes. The petitioner had approached the Authority for Advance Ruling to seek clarity on whether any GST is payable on the interest/penalty charged for delay in payment of subscription amounts by the chit subscribers. The Authority for Advance Ruling and the Appellate Authority for Advance Ruling held that the interest/penalty charged on delayed payments would be subject to GST - Whether the interest and penalty recovered by the chit fund company from defaulting subscribers are liable to GST – HELD - Under the Chit Funds Act, 1982, the foreman (chit fund company) is entitled to interest and penalty on any default in payment of installments by the subscribers, in addition to the commission/remuneration. This interest and penalty cannot be treated as a service fee or other charges, as the Act caps the commission/remuneration of the foreman at 7% of the chit value - The relationship between the foreman and the subscribers is in the nature of a debt, and the foreman is entitled to recover the entire balance amount in case of default. The interest and penalty charged on such defaults would be covered by the exemption provided under Entry 27 of Notification No. 12/2017-CT (Rate), which exempts services by way of extending deposits, loans or advances, to the extent the consideration is represented by way of interest or discount – The findings of the Authority for Advance Ruling and the Appellate Authority for Advance Ruling are set aside and it is held that the interest and penalty, recovered by a foreman, in relation to default in payment of installments would not be exigible to tax under the GST Act – The Writ Petition is allowed
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