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GST update on complexities as regards ley of GST on delayed payment charges

GST update on complexities as regards ley of GST on delayed payment charges

A new concept of leviability of GST on interest or late fee for delayed payment of consideration has been introduced in GST regime in section 15(2)(d) of the CGST Act, 2017. The section 15(2)(d) states that the interest or late fee or penalty for delayed payment of any consideration for any supply shall be included in the value of supply for the purpose of levy of GST. This means that if any delayed payment charges are received by an assessee, GST will be payable on such late fees/charges. Now, the question arises that at what rate GST will be payable on such late charges. It is submitted that the GST rate as applicable on supply of goods will be considered for the purpose of discharging GST on late fee charges because as per section 15(2)(d), such charges are to be included in the value of supply thereby meaning that the GST rate of goods will apply for the purpose of levying GST on delayed payment charges. Now, another question that arises is when does the liability to pay GST on late fee charges arise?

As per Section 12(6) of CGST Act, 2017 relating to time of supply of goods, it is provided that the time of supply to the extent it relates to an addition in the value of supply by way of interest, late fee or penalty for delayed payment of any consideration shall be the date on which the supplier receives such addition in value. This indicates that GST shall be payable on interest on delayed payment only when the said interest is received by the assessee. Hence, it is clear that there will be no interest liability on the GST paid on delayed payment charges by the assessee. This provision has been introduced for the first time in GST regime. But the problem arises how the same will be recorded while filing of returns under GST.
Let’s understand this with the help of example.
Situation- Trader C has supplied goods to B on 1st July’2017 with the condition that B is obliged to make the payment within 30 days of receiving the goods. Now, C has received payment on 31 August’2017 i.e. after the stipulated time. He has issued a debit note to B for interest @12% for delayed payment in September’17. But the payment of such interest was received by him in December 2017.
Issue- Now the issue arises in respect of recording such transaction while filing of GSTR-1. Proper time to record such transaction will arise when debit note was issued i.e. in the month of September 2017. However, as per Section 12(6), the time of supply relating to debit note issued shall be date on which such amount is received by assessee, i.e., December, 2017. Hence, GST is payable in December, 2017. There is an ambiguity as in which month this transaction will be recorded in returns, in the month of issue of debit note or in the month of receipt of delayed payment charges. Hence, clarification on the treatment of delayed payment charges and its reflection in GSTR-1 should be issued by the government.

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