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The additional/Penal interest recovered by the Applicant from their customers against the delayed payment of monthly instalments of the loan extended to such customers, would be exempt from GST

Levy of GST— The issue involved in the appeal relates to the question as to whether the penal interest charged by the Applicants, which is in the nature of interest on loans, from its customers is in the nature of tolerating an act in terms of entry 5 ( e) of Schedule II of the CGST Act, 2017 or whether the same is in the nature of additional interest and is exempt vide Serial No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The applicant, vide their application, have submitted that the impugned AAAR order dated 14.03.2019 needed to be rectified owing to the presence of error, which is apparent from the face of record, as the said impugned ruling is contrary to the Circular No. CBEC-102/21/2019-GST dated 28.06.2019 issued by the CBIC, which clarifies that the transaction of levy of additional/penal interest does not fall within the ambit of entry 5 (e) of Schedule II of the CGST Act, 2017, whereas vide the impugned AAAR order, it was held that Additional/Penal Interest charged by the Applicant from their customer for the delayed payment of EMI would fall under the ambit of entry 5(e) of the Schedule II to the CGST Act, 2017, and hence would be subject to GST. Held that— We, hereby, hold that the additional/Penal interest recovered by the Applicant from their customers against the delayed payment of monthly instalments of the loan extended to such customers, would be exempt from GST in terms of SI. 27 of the Notification No. 12/2017-C.T. (Rate) dated 28.06.2017.
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