Facts of the case:
- The applicant, Bajaj Finance Limited, is engaged in the business of auto loans against property and personal loans.
- The loan agreement provides for repayment of EMI or outstanding dues through cheque/ Electronic Clearing System/National Automated Clearing House, or any other electronic or clearing mandate.
- However, in case of default in repayment by way of dishonour of cheque, or any other electronic credit system, a fixed fee of ₹350 as ‘bounce charges’ are charged.
The applicant approached the AAR seeking clarity on whether the bounce charges collected should be treated as supply under the GST regime.
Assessee claimed that post GST, bonus charges are in nature of penalty or liquidated damages and, therefore, the “same is not a consideration for supply of service and, hence, should not be subjected to the levy of GST.”
Provisions and interpretations of law:
- AAR ruled that such charges collected by the applicant qualifies as supply of services and, hence, will be liable to GST.
- Aggrieved by this decision, the applicant went for appeal on the ground of non-speaking order by AAR.
- Authority focused on ‘bounce charges’and said the ‘bounce charges’ do not have a ‘quid pro quo’; hence, it cannot be said that such charges are recovered under a contract,
- It was further submitted that such charges are part of original contract and do not constitute a separate contract. Hence, the money recovered should be adjudged as such
- In the agreement, it is clearly stated “the defaults in payment of EMIs, as also the bouncing or dishonour of cheque to be deemed as defaults, and has recourse to recall the loan or cancel the agreement or to initiate proceedings under legal recourse or take possession of the product”.
- The agreement clause is a supply covered under the Act and, accordingly, will be liable for GST.
Conclusion: Bouncing of cheque should be treated as a default which may call for either cancelling of the loan agreement or block the property on loan or proceeding under legal recourse. As per the ruling, this is a supply covered under the Act and will be taxable under GST Laws.