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GST Update on GST On Reimbursement Of Cheque Dishonour Charges

GST Update on GST On Reimbursement Of Cheque Dishonour Charges

Sometimes when a cheque of any party is dishonoured, bank charges the recipient of cheque with specified amount (say Rs. 100/-). Such recipient recovers a higher amount (say Rs. 500/-) from the buyer as cheque dishonour charges. Under these facts and circumstances, whether GST will be leviable on the said amount recovered from the buyer is a big question.

With reference to this it is pertinent to note that clause 5 of Schedule II of CGST Act, 2017 specifies certain entries which will be deemed as supply of service. Sub-clause (e) to clause 5 reads as follows:-

"Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act"

Thus, if any person tolerate an act or a situation and recovers a certain amount for such tolerance, it will be considered as a supply of services. In the instant case, the act of buyer (whether it is issuance of cheque with incorrect particulars or issue of cheque inspite of fact that there were insufficient funds) is being tolerated by recepient. For this tolerance, the recepient recovers an amount of Rs. 500 (as assumed in this case). Thus, this will be covered under the above clause as "to tolerate an act or a situation".

Alternatively, we can also say that the recipient has refrained from an act of suing the buyer if he pays the amount of Rs. 500/- to the former. In that case also, it will be covered in clause (e) above as "to refrain from an act". Thus, in either way, it will be deemed as a supply of service under schedule II of CGST Act and tax will be leviable on the same. SAC applicable in this case is 999794.

Since the activity in the given case is deemed as supply of service, its tax rate will be decided in accordance with provisions of entry no. 35 of Notification no. 11/2017-Central Tax (Rate) dated 28th June, 2017. This entry prescribes the tax rate of 18% on the services with SAC 9997 which are not specified anywhere else.

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