Gujarat AAR Decision: Shree Sawai Manoharlal Rathi (GST AAR Gujarat)
In the case of Sawai Manoharlal Rathi, the Gujarat Authority for Advance Ruling has held that interest income from PPF, interest income from personal loan and advances are given to family/friends and interest income from saving bank account to be included in aggregate turnover for GST registration
For example, Mr. Rahul is dealing with renting out commercial properties. He received 9.84 Lakhs as rent from the commercial property which is also included in aggregate turnover. After adding interest on PPF, Saving Bank, and Fixed Deposit, and persons advance to others. The Gross aggregate turnover of a person is 20,84,000. Mr. Rahul stated that the interest is earned out of his personal investment.
Mr. Rahul goes to AAR for clarification whether he is required to take registration as his income exceeds 20 lacs?
Whether interest from interest on PPF, Saving Bank interest, interest on Fixed Deposit, and interest in advance to others included for calculating the threshold for registration?
The AAR said that the aggregate turnover will include the exempt supply. Therefore, the interest amount will be included for the purpose of calculating the threshold of registration under GST.
My Opinion: I do not agree with the decision of the AAR- Gujarat.
As per Section 22 of the CGST Act 2017, “Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both if his aggregate turnover in a financial year exceeds the threshold limit. The threshold Limit is 40 lacs for Goods & 20 lacs for services”
Explanation — a person shall be considered to be engaged exclusively in the supply of goods even if he is engaged in the exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
Example: If Sales of goods are 38 lacs and other interest income i.e. exempt under GST is 4 lacs, then such a person is not required to take GST Registration as per explanation under Section 22.
The above explanation is only for the purpose of intrastate supply of goods. It is not applicable to the supply of services. Here the case under consideration is the supply of services so, this explanation is not applicable.
As per Section 2(6) of the CGST Act 2017, “Aggregate turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax, and cess;”
As per Section 2(47) of the CGST Act 2017, “Exempt supply means the supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply also includes Exemption by notification 2/2017 for Goods & Notification 12/2017 for Services”
As per Section 2(78) of the CGST Act 201, “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;
Non Taxable supplies under CGST Act 2017, “Petroleum crude, high-speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel, alcoholic liquor for human consumption, and Interest income are exempt via entry 27(a) of Notification 12/2017.”
As per Section 7(1) of the CGST Act 2017, “Supply includes the supply of goods or services for consideration by the person in the course or furtherance of business but in case of import of services for consideration furtherance of business is not required.”
As per section 2(17) of the CGST Act 2017, ”
(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit;
(b) any activity or transaction in connection with or incidental or ancillary to sub-clause (a);
(c) any activity or transaction in the nature of sub-clause (a), whether or not there is volume, frequency, continuity or regularity of such transaction;
(d) supply or acquisition of goods including capital goods and services in connection with commencement or closure of business;
(e) the provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members;
(f) admission, for a consideration, of persons to any premises;
(g) services supplied by a person as the holder of an office which has been accepted by him in the course or furtherance of his trade, profession or vocation;
(h) activities of a race club including by way of totalisator or a license to bookmaker or activities of a licensed bookmaker in such club; and;
(i) any activity or transaction is undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities;
If you look at the definition of business then receipts from personal loans and advances, deposits, and Bank Interest are not covered under term Business.
Now Questions arise?
- Whether the amount invested in PPF & interest earned on such a PPF account is in the course or furtherance of business?
Answer: Ideally, PPF is a personal investment. Therefore, Interest earned on such PPF is not the business income.
- Whether interest earned on saving account or Fixed or any deposit with Bank can be treated as “in the course or furtherance of business”?
Answer: Saving interest and Interest on Bank deposit is also Personal income. Therefore it is not the business income.
However, if FD is made for business purposes then interest income may be considered as in the course or furtherance of business.
- Whether Personal advances have given & on which interest is earned can it be considered as “in the course or furtherance of business”?
Answer: Personal advances are given for the purpose of interest-earning shall not come under the ambit of business income. It shall not be considered as “in the course or furtherance of business”.
- The AAR held that interest on personal advances or bank interest is part of the exempt supply. Hence it will be included for calculating the threshold of registration. But the question is whether such interest is taxable?
Answer: For the purpose of levy under GST supply shall be the precondition. If something is not supplied then it can’t be taxed under GST. If something can’t be taxed under GST then how can you provide exemption under GST?
Therefore, in our opinion interest on PPF, Bank saving interest, other bank interest for personal FDs, etc & Interest on personal advances will not be part of the supply.
If it is not at all supply then it cannot be considered in the ambit of exempt supply. Because exemption cannot be given for the transaction which is not at all part of supply or which is not at all taxable transactions. Hence it will not be included in the aggregate turnover. In India many senior citizens having Rent income from commercial property and interest income. If this AAR decision is considered by the government then most senior citizens have to take GST registration, which will lead to unnecessary tax compliance and harassment to senior citizens.