GST applicable on cheque bouncing charges : AAR

Maharashtra Auhority of Advance Ruling in matter of Bajaj Finance Limited

The Authority for Advance Ruling held that the receipt of cheque bouncing charges on dishonouring of cheques would be receipt of amounts for tolerating the act of their customers it dishonouring of cheque. Therefore, it would be treated as supply under GST as per S. No. 5(e) of Schedule II of the CGST Act, 2017 and, hence, taxable under the GST Act.

GST applicable on cheque bouncing charges : AAR

The Extract of Order is given Below :

In the present case, as per details presented before us, we clearly find that there is a clear understanding or agreement between the parties in the present case to foresee and tolerate an act or a situation of default on the part of the client for a monetary consideration which is actually a consideration received by the applicant, though in the agreement they may be giving this consideration, other names such as ‘penal charges’, penalty, Bounce Charges, etc, as thought proper by them, but these different nomenclatures in their Agreement would in no way change the actual nature of monetary “consideration” which would clearly be taxable for the supply of services as per Sr.No. 5(e) of Sch. II of the CGST Act, 2018.

To summarise, the exemption for financial transactions under GST laws is only in respect of the interest/ discount earned or paid for loans, deposits or advances. If the transaction, as in the subject case deviates from the above, i.e. the consideration not being an interest or discount, the exemption is not available. In the subject case the amount of bounce charges cannot be said to be penalty imposed on by the applicant. It is recovered/imposed only because the client has dishonoured the cheques issued by them towards payment of EMI. Dishonour of cheques i.e. a mode of repayment to the applicant by their customers, is an act which results in delay of receipt of repayments to the applicant. This delay is an act done by their customers which is tolerated by the applicant because inspite of such dishonour the applicant proposes to continue the agreement with the defaulting party. Thus we find that the recovery of bounce charges is made in view of toleration of the act of the client by the applicant and therefore construes as ‘supply’ as per as per Sr. No. S(e) of Sch. II of the CGST Act and is therefore taxable under the GST Act.

06. In view of the deliberations as held hereinabove, we pass an order as follows:

ORDER
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)

NO.CST-ARA-21/2018-19/B- 84

Mumbai, dt. 06th August 2018

For reasons as discussed in the body of the order, the questions are answered thus

Questions 1 : Whether the bounce charges collected by the applicant should be treated as a supply under GST regime

Answer : Answered in the affirmative.