While addressing an Application filed by the Reserve Bank of India ( RBI ) Maharashtra Authority for Advance Ruling ( AAR ) carried that the penalties, Late Fees, Penal Interests or Fines levied and collected by RBI from contravening banks, non-banking financial institutions and other such entities could not be considered as ‘Supply’ under the Goods and Services Tax (GST) regime and are not levied to tax.
RBI under section 97 of the Central Goods and Services Tax Act, 2017 applied Advance Ruling. Reserve Bank of India (RBI) being the central bank of the country performs distinct operations though not restricted to the Monetary Authority, Regulator and Supervisor of the Banking and Financial System, Manager of Foreign Exchange, Issuer of Currency and Regulator and Supervisor of Payment and Settlement Systems.
One of the queries required to be addressed via the existing application was if the penalties, Late Fees, Penal Interests or Fines levied and collected by RBI for breaching the provisions of the law are taxable under GST.
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RBI has presented the reasons to levy the penalties on agency banks, but not confined to the non-maintenance of Cash Reserve Ratio (CRR), and Statutory Liquidity Ratio (SLR) among others under the RBI Act, 1934; penalty for bouncing the Subsidiary General Ledger Account Forms under the Government Securities Act, 2006; Late Submission Fees for delayed regulatory reporting on account of External Commercial Borrowings and Trade Credits availed under the Foreign Exchange Management Act, 1999 ( FEMA ) among others.
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The interpretation of the law has been presented by the Reserve Bank of India to AAR by relying on the reference to Circular No.178/10/2022-GST ( CBIC Circular ) dated 03.08.2022 which specifies the GST non-applicability on the penalties levied towards the breach of the laws and the violation of contract.
The two-member Bench of the Maharashtra Authority for Advance Ruling has been made by Ajaykumar V. Bonde, Joint Commissioner of State Tax and Priya Jadhav, Joint Commissioner of Central Tax concurred with the submissions of RBI and directed to Paragraph 7.4 of the CBIC Circular to quote that the penalties levied for the breach of the laws could not be regarded to be consideration imposed via a government or a local authority for entertaining the breaches.
The AAR under the clarification carried that the Penalties, Late Fees, Penal Interests or Fines imposed and collected via RBI from breaching banks, and non-banking financial institutions for the objective of carrying the discipline and deterrence in the regulated banks along with the other entities for the breach of the law are not under consideration therefore not being a supply of service and does not obligate to GST.
| Name of Applicant | Reserve Bank of India |
| GSTIN | 27AAIFR5286M1ZG |
| Advance Ruling No. | No.GST-ARA-117 of 2022-23/2024-25/B-53 |
| Date | 31.07.2024 |
| Maharashtra GST AAR | Read Order |
