No GST Ruling on Del Credere Agent Interest Due to Split Decision
Gujarat Appellate Authority delivered a split verdict, leaving unresolved whether GST applies to interest charged by Del Credere Agents on buyer loans.
- Ruling
- GUJ/GAAAR/APPEAL/2018/2 and GUJ/GAAAR/APPEAL/2018/2A dated 24.7.2018
- Dated
- 24 Jul 2018
- Authority
- Appellate Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Company asked if interest charged on customer loans by an agent is GST exempt.
- The Appellate Authority members disagreed, resulting in a split verdict.
- One member held that interest forms part of the taxable supply value.
- The other member held that short-term financing is an exempt loan service.
- Because of divergent opinions, no valid advance ruling was issued.
In short
A Del Credere Agent (DCA) is a sales agent who guarantees that buyers will pay the main supplier for goods. When a buyer cannot pay on time, the agent pays the supplier directly and gives the buyer extra time to pay back, charging interest on that short-term loan. The tax department challenged an earlier decision that said this interest is exempt from Goods and Services Tax (GST). The core debate was whether this interest is an exempt standalone loan or part of the taxable value of goods sold.
What has changed
How it worked before
Businesses operating as Del Credere Agents generally assumed that interest earned on financing buyer payments was a separate loan transaction, making it exempt from Goods and Services Tax (GST) under Notification No. 12/2017-Central Tax (Rate).
What has changed
The Gujarat Appellate Authority for Advance Ruling (AAAR) issued a split verdict under order GUJ/GAAAR/APPEAL/2018/2, meaning no final decision was reached. Member Ajay Jain held that the interest is taxable under Section 15(2)(d) of the CGST Act because funding defaults is part of the agent's core job. Member Dr. P.D. Vaghela held that the financing is an independent loan exempt under Serial No. 27 of Notification No. 12/2017-Central Tax (Rate). Under Section 101(3) of the CGST Act, when members disagree, no advance ruling is issued, leaving the tax issue legally open.
Who this affects
Del Credere Agents, commission agents, and trade intermediaries in India who pay suppliers on behalf of buyers and charge interest on delayed payments.
An example
ABC Chemicals acts as a Del Credere Agent in Gujarat, booking orders for manufacturers and guaranteeing payment. When a buyer needs extra time, ABC Chemicals pays the manufacturer on time and charges the buyer 12% annual interest until repaid. ABC Chemicals wants to know if this interest requires GST. This appellate order shows that tax authorities themselves are split on the answer, meaning ABC Chemicals cannot rely on this case for a clear rule.
What you should do
Do not assume this order grants your business a tax exemption or imposes a tax. An advance ruling only binds the business that asked, and a split verdict creates no official ruling at all. Business owners should review their agency contracts with a qualified GST practitioner to decide whether to charge GST on customer interest.
If you do nothing
Assuming this case clears your business from paying GST on agent interest creates significant tax risk. Because the appellate authority issued a split verdict, local tax officers remain free to argue that your interest charges are taxable under Section 15(2)(d) of the CGST Act. If an audit goes against you, you may have to pay back taxes along with interest and non-compliance penalties.
The terms explained
- del credere agent
- A sales agent who guarantees that the buyer will pay the supplier, taking on the financial risk if the buyer defaults.
- split verdict
- A situation where judges or authority members disagree equally, resulting in no final majority decision.
- taxable supply
- The total value of goods or services on which Goods and Services Tax (GST) must be calculated.
The ruling in detail
Appellate Authority for Advance Ruling
M/s. Shreenath Polyplast Pvt. Ltd.
GUJ/GAAAR/APPEAL/2018/2 and GUJ/GAAAR/APPEAL/2018/2A dated 24.7.2018 · Gujarat
Questions before the authority
- Whether an amount charged as interest on transaction based short term loan given by the Del Credere Agent (DCA) to buyers of material is exempt from tax in terms of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (Serial Number 27) ?
Facts
The applicant operates as a Del Credere Agent (DCA) for principal suppliers of goods, taking orders and guaranteeing payment realization from buyers. When buyers are unable to pay the principal on the due date, the applicant extends short-term loan facilities to the buyers by remitting payment directly to the principal on their behalf and charging interest on such extended amounts. The Revenue challenged the AAR order which had held that interest charged by the DCA on such short-term loans is exempt from GST.
Ruling
| Question | What the authority ruled |
|---|---|
| Exemption on interest charged by Del Credere Agent (DCA) on short-term loans extended to material buyers | No ruling issued due to split order Member Ajay Jain held the interest taxable under Section 15(2)(d); Member Dr. P.D. Vaghela held the interest exempt under Sl. No. 27 of Notification No. 12/2017-CT(R). |
The Appellate Authority issued a **split verdict** due to divergent opinions between its two members. Member Ajay Jain held that the ruling of the AAR was erroneous and required to be set aside, finding the interest taxable under Section 15(2)(d). Member Dr. P.D. Vaghela held that the appeal required dismissal, upholding the AAR ruling that the interest is exempt from tax under Serial No. 27 of Notification No. 12/2017-Central Tax (Rate).
Reasoning
Member Ajay Jain held that guaranteeing and making payment to the principal on default by the buyer is an essential characteristic of a DCA transaction, making the temporary funding integral to the supply contract and bringing interest within the value of taxable supply under **Section 15(2)(d)** of the CGST Act, 2017. Conversely, Member Dr. P.D. Vaghela held that since the DCA does not issue invoices or pass title of goods to the buyer, the underlying supply of goods remains strictly between the principal and buyer; therefore, providing short-term loan facilities is an independent service by way of extending loans/advances exempt under **Serial No. 27 of Notification No. 12/2017-Central Tax (Rate)**.
Provisions relied on
- Section 2(5) of the CGST Act, 2017
- Section 2(105) of the CGST Act, 2017
- Section 15(2)(d) of the CGST Act, 2017
- Section 86 of the CGST Act, 2017
- Section 100(1) of the CGST Act, 2017
- Schedule I, Para 3 of the CGST Act, 2017
- Notification No. 12/2017-Central Tax (Rate) (Serial No. 27)
- CBEC Office Memorandum F.No. 349/40/2017-GST dated 05.09.2017
For the practitioner
Because the Appellate Authority delivered **divergent orders**, no definitive advance ruling stands issued on this question under Section 101(3) of the CGST Act. The decision highlights competing legal perspectives regarding whether interest charged by a Del Credere Agent for financing customer payments constitutes part of the taxable supply value under Section 15(2)(d) or an independent exempt loan transaction under Notification No. 12/2017-CT(R).
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/2024-02/guj_gaaar_2018-2_24.07.18.pdf
Legibility of the scan, as read: high.
Prepared 21-10-2026.
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