GST Applicable on interest part of Equated Yearly Installment paid under Annuities Model by Local Authority: AAR

The applicant M/s. Hyderabad Metropolitan Water Supply and Sewerage Board (HMWS&SB) is making payments to the contractors in equated yearly installment manner wherein such equated yearly installment consists of both principal amount and interest on such delayed payment. The applicant is desirous of ascertaining their liability on payment of GST on interest for delayed payment.

Questions raised by the Applicant:

1. HMWS&SB being a local authority, is the payment of Equated Yearly Installment (which includes Principal and Interest) under the Annuities Model is liable for payment of GST or Not? If Yes Classification of service and the applicable rate of GST payable?
2. Applicability of Entry No. 3 of the Notification Number 12/2017 – Central Tax (Rate), dated 28th June, 2017 for payment of interest included in Equated Yearly Installments under Annuities Model, being payment of interest is a Pure Service?

Advance Ruling

As per the Authority of Advance Ruling (AAR) clause (d) of sub-section 2 of Section 15 clearly states that the value of supply shall include interest or late fee or penalty for delayed payment of any consideration for any supply. Therefore all the monies paid to the contractor by the applicant including the interest on delayed payments is liable to tax under CGST Act, 2017 under this provision.

Thus GST is applicable on Interest being part of the consideration as per the valuation rules.

Further, the Authority added that in view of the above discussion question of Applicability of Entry No. 3 of the Notification Number 12/2017 – Central Tax (Rate), dt: 28th June, 2017 does not arise.