In re Daimler Financial Services India Private (GST AAR Tamilnadu)
Whether the interest subvention income received by Daimler Financial Services India Private Limited (DFSI) from Mercedes-Benz India Private Limited (MB India) to reduce the effective interest rate to the final customer is chargeable to GST?
The interest subvention income received by Daimler Financial Services India Private Limited(DFSI) from Mercedes-Benz India Private Limited (MB India) to reduce the effective interest rate to the final customer is chargeable to GST as a supply under SAC 999792 as Other miscellaneous Services , agreeing to do an act, to 9% CGST and 9% SGST as per Si no 35 of Notification No 11 / 2017 Central Tax (Rate) dt. 28.06.2017 as amended are chargeable as per SI no 35 of Notification No. II(2)/CTR/532(d- 14)/ 2017 vide G.O. (Ms) No. 72 dated 29.06.2017 as amended.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING TAMIL NADU
Note : Any appeal against the advance ruling order shall be filed before the Tamilnadu State Appellate Authority for Advance Ruling, Chennai under Sub-section (1) of Section 100 of CGST ACT/TNGST Act 2017 within 30 days from the date on which the ruling sought to be appealed against is communicated.
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
M/s. Daimler Financial Services Private Limited , No. 3, Unit 301,302, RMZ Millenia Business Park, Perungudi, Chennai-600096 (hereinafter called as Applicant or DFSI ) is registered in GST vide GSTIN 33AADCD6300J1Z1. They have stated that they are registered with Central Bank of India as a non-banking financial institution engaged in the activities of “Leasing and Finance” which includes operating lease of passenger vehicle and financing of commercial and passenger vehicles to end customers. DFSI also does dealership related financial services like inventory financing for Daimler franchised dealers. The Applicant has sought Advance ruling on the following question
Whether the interest subvention income received by Daimler Financial Services India Private Limited (DFSI) from Mercedes-Benz India Private Limited (MB India) to reduce the effective interest rate to the final customer is chargeable to GST?
The Applicant has submitted the copy of application in Form GST ARA – 01 and also submitted a copy of Challan evidencing payment of application fees of Rs.5,000/-each under sub-rule (1) of Rule 104 of CGST rules 2017 and SGST Rules 2017.
2.1 The statement of relevant facts submitted by the applicant is given verbatim below:
> Mercedes Benz (MB) is engaged in manufacture and sale of passenger cars under the brand “Mercedes Benz” vehicles and has extensive network of authorized dealerships engaged in sale of MB cars all over India.
> Customers who purchase MB India cars from the authorized dealers may require financing . DFSI acts as a financier and provides loan to customers at interest rate lower than alternative providers. The differential interest (market rate less the rate offered to customers) is paid to DFSI by MB India. This amount paid is termed as interest subvention or alternatively interest subsidy.
> An illustration of the scheme is provided below:
In the illustration given above, the customer would normally be liable to pay interest at 10%. Under the subvention agreement the customer is liable only for 8% and the balance 2% is paid by MB India.
> DFSI has entered into a memorandum of understanding with MB India, Wherein MB India nominated DFSI as the preferred financier to provide retail loan at a concessional rate to customers who purchase Mercedes Benz vehicles from authorized dealers. The agreements between DFSI and customers also mention the interest at normal rates, subvention (as a percentage) and the net interest charged from the customers. The subvention amount is identified and paid to DFSI upfront by MB India. Recognition of proportionate interest subsidy as income of DFSI is done over the tenure of the loan provided to the customer. A DFSI raise monthly invoices for the subvention income and also while effecting the payment to DFSI, MB India deducts TDS u/s 194A of Income Tax Act, 1961 for payment of interest.
2.2 In view of the above, the applicant has sought advance ruling to clarify whether the interest subvention income received by them from MB India to reduce effective interest rate to the final customer is chargeable under GST. The applicant submitted that Interest income is exempt vide entry no. 28 of Notification No. 9/2017-Integrated Tax (Rate) dated 28th June 2017. As per definition of “interest “in Para 2 of this notification, it is not necessary that only the borrower pay interest. As per definition of “consideration” under CGST Act read with India Contract Act, 1872, consideration may be paid by any person and the subvention payment or discount is consideration in the form of interest paid by MB India on behalf of the customer. Interest subvention income received in a month is in pursuance of the amount of finance provided by the applicant to customers. This should not change only because interest was received from a person other than to whom the financing is made. Recognition of income by the applicant is done over the tenure of the loan provided to the customer and the definition of “interest” uses the phrase ‘payable in any manner’, meaning it can be paid over a period of time. This is permitted in Ind-AS notified under Companies, Act, 2013. MB India withholds income tax under Section 194A of Income Tax Act, 1951 as interest other than interest on securities.
3.1 The Authorized Representative of the Applicant was heard in the matter on 19.11.2018. They stated that as per the MOU between DFSI and MB India, DFSI charges a lower interest to the customer of MB India. The difference interest amount for each transaction is paid to DFSI by MB India and is received upfront by DFSI who account the amount over the course of the loan in their books. They provided Case laws to clarify the definition of interest and that subsidy given as offset of loss to creditor by third party will also qualify as interest. They also stated that in the consideration of the supply between DFSI and customer, this interest subvention would qualify and would be interest which is exempt from GST. The invoice raised by MB India will be for the total amount involved for each customer ‘loan’. They undertook to provide Books of Accounts, Vouchers and Statement of relevant accounts. They also furnished a Written submission at the time of hearing, wherein, inter-alia, they stated that:
> Interest income is exempt vide Notification No. 12-Central Tax (Rate) dated 28th June 2017
> The Education Guide issued by the Central Board of Excise and Customs in the earlier tax regime specifically clarified that the consideration for a service can be paid by a person other than the service recipient.
> As per Merriam- Webster dictionary, subvention means the provision of assistance or financial support; such as, a : endowment or b: a subsidy from a government or foundation
> It is pertinent to note certain key stipulations of the MOU entered into by DFSI and MB India:
