M/S Home Credit INDIA Finance PVT LTD vs. Haryana Appellate Authority For Advance Ruling And Ors

Facts

The petitioner, M/s Home Credit India Finance Pvt Ltd, filed a writ petition challenging an order dated 18.10.2024. The petitioner is a finance company. The respondents are the Appellate Authority for Advance Ruling and the State of Haryana. The dispute pertains to GST charges on loan transactions. The petitioner contended that GST should not be levied on certain charges related to loan contracts, particularly when they are imposed due to non-compliance by the borrower. The revenue, represented by the State counsel and Senior Standing Counsel, acknowledged that the issue had been clarified by the Central Board of Indirect Taxes and Customs (CBIC) through Circular No. 245/02/2025 dated 28.01.2025, which aligns with a Reserve Bank of India directive dated 18.08.2023. This circular clarifies that GST is not payable on charges levied by regulated entities for non-compliance with loan contract terms by the borrower.

Held

The Court held that the impugned order dated 18.10.2024, along with all consequential orders, should be quashed. The Court's decision was based on the submission by the revenue that the issue had been clarified in favour of the petitioner by the Central Board of Indirect Taxes and Customs (CBIC) through its circular No. 245/02/2025 dated 28.01.2025. This circular, in line with the Reserve Bank of India's directive dated 18.08.2023, clarifies that for non-compliance with the terms and conditions of the loan contract by the borrower, if any penal charges are levied by regulated entities, then no GST would be payable on such charges. The Court accepted this submission and found that the impugned order was inconsistent with the prevailing clarification. The ratio decidendi is that charges levied by regulated entities due to a borrower's non-compliance with loan contract terms are not subject to GST, as per the CBIC's clarification.

Key Issues

1. Whether GST is leviable on charges imposed by a regulated entity for non-compliance with loan contract terms by the borrower, in light of the CBIC Circular No. 245/02/2025 and RBI directive dated 18.08.2023? Petitioner's Argument: The petitioner argued that based on the clarification provided by the CBIC in Circular No. 245/02/2025, which is in line with the RBI directive of 18.08.2023, GST should not be payable on such charges. They contended that these charges arise from the terms and conditions of the loan contract and are imposed due to the borrower's non-compliance, and therefore, no GST should be applicable. Revenue's Argument: The revenue, through the State counsel and Senior Standing Counsel, fairly submitted that the issue raised by the petitioner has been clarified in their favour by the CBIC. They acknowledged the applicability of the said circular and the RBI directive.