Whether GST should be charged on `Cheque Dishonour Charges’ had been issue of advance rulings before the various State Advance Ruling Authorities. Recently this issue came before Hon’ble Appellate Authority for Advance Ruling of Rajasthan against the judgement by Ld. Rajasthan Authority for Advance Rulings(RAAR). Appellants have pleaded before the authorities that since `Cheque Dishonour Charges’ is nothing but the compensation for the penal charges paid by them to the bank and therefore, should not be subjected to GST as the same is out of the ambit of `Supply’.
In the case of TP Ajmer Distribution Ltd. Reported at 2019(23) GSTL 60, the Hon’ble authority analysed the entire facts. While discussing the facts and law on this issue, the Honble Authority held that these charges are covered by the Clause 5(e) of the Schedule-II of the CGST Act, 2017. Schedule II to the Act which has the title – “ Activities to be treated as Supply of Goods or Supply of Services” is a deeming provision. Clause 5(e) of this schedule reads:
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
If any persons tolerates any act or a situation and recovers a certain amount for such tolerance then it is supply of service. In the case of `Cheque Dishonour’, assessee is tolerating the situation of dishonor of cheque by charging certain amount from customers. Dishonour of cheques i.e. a mode of payment to the assessee 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 assessee because inspite of such dishonor, the applicant proposes to continue the agreement with the defaulting party. Hence this becomes supply in terms of clause 5(e). Therefore, `Cheque dishonor Charges’, being a supply of service and not exempted anywhere , appropriate GST i.e. @ 18% is chargeable on the value of this supply.
(The author is a Jaipur based practicing Chartered Accountant and can be reached on 09829063908, [email protected])