2021 (12) TMI 773 - AAR - GST

Levy of GST - Valuation - Electricity charges and Water charges paid by the Applicant as per meter reading and collected from the recipients at actual on reimbursement basis - Pure agent or not - scope of supply - addition of value of Electricity and Water charges to the monthly License Fee if as per terms of the contract tenant user is paying for such utility services directly to the Service Provider i.e. Electricity Power Distributor/BMC - HELD THAT - The applicant has agreed to lease out the premises which is an immovable property. As per entry no. 5 (a) of Schedule II. Renting of Immovable Property is a supply of services and liable to tax under the provisions of GST Act. The utilities such as electricity and water supply are basic amenities subject to which competent authority will not issue occupancy certificate for conducting commercial activities/ business - The payment of rent is fixed on monthly basis which is for the occupancy and also the use of the premises whereas the variable amount of electricity and water charges (at actuals), paid by the Licensee, is for effective enjoyment of the rented premises without which the occupation of the premises could not be possible. Thus, the provision of essential services is mandatory on landlord and it is not mere facilitating the payment of electricity charges by the licensor. The value of supply includes incidental expenses charged by the supplier in respect to renting of premises for the purpose of levy of tax except for subsidies provided by the Government and the value of discount. Therefore, the charges for electricity and water charges recovered as reimbursements, even if at actuals, have the nature of incidental expenses in relation to renting of immovable property and are includible in the value of supply and are to be considered as transaction value for the purpose of levy of tax - The concept of a pure agent under GST Laws is covered under the provisions of Rule 33 of CGST Rules, 2017 and as per the said Rule 33, the expenditure or cost incurred by a supplier, as a pure agent of the recipient of the supply shall be excluded from the value of supply. However, such exclusion of expenditure incurred as a pure agent is possible only where certain conditions as mentioned in the said Rules are fulfilled and benefit is available only if the conditions stipulated in the rules are satisfied by the supplier. In the instant case, the main electric meter is in the name of the Applicant ; the service is not acquired from main supplier of electricity on the instructions from the tenant and thus the applicant does not act as pure agent of tenant in this respect. Even after the tenant leaves the premises, the main electric (or main water) meter is going to remain in the name of the Applicant. The supply under the main meter is not due to instructions from any particular tenant. With regards to a 'pure agent', the applicant contends that the reimbursement of expenses, such as electricity charges, water supply charges etc. incurred by it and received from lessee are towards payment to the third party suppliers. In present case the applicant has got the main electric connection in its own name and has created different sub connections at each location to know the actual consumption of electricity and water charges by the tenants which are to be apportioned/recovered from them as per floor space occupied. All these activities show that these supplies are on applicant's own account and is for effective enjoyment of premises. The reimbursed electricity and water charges charged to the licensee by issuing debit note or paid by the licensee is considered monthly License fee and total value along with fixed monthly rent is to be considered as transaction value of rent for the purpose levy of tax under GST Act.

Summary

Issues Involved:
1. Liability of GST on electricity and water charges paid by the applicant and collected from recipients on a reimbursement basis.
2. Whether the applicant acts as a "Pure Agent" in the given scenario.
3. Inclusion of electricity and water charges in the monthly license fee if paid directly by the tenant to the service provider.

Issue-Wise Detailed Analysis:

1. Liability of GST on Electricity and Water Charges:

The applicant sought clarity on whether electricity and water charges paid by them as per meter readings and collected from recipients on a reimbursement basis are liable to GST. The applicant argued that these charges should not attract GST as they are merely reimbursed expenses and do not constitute a supply under Section 7 of the GST Act. However, the Authority for Advance Ruling (AAR) observed that the renting of immovable property is a taxable supply of service under the GST Act. The electricity and water charges are considered essential services for the effective enjoyment of the leased premises and are treated as part of the consideration for the supply of renting the property. Therefore, these charges are included in the value of supply and are liable to GST.

2. Whether the Applicant Acts as a Pure Agent:

The applicant contended that they acted as a "Pure Agent" as defined under Rule 33 of the CGST Rules, 2017, arguing that the reimbursement of electricity and water charges should not be included in the value of supply. The AAR examined the conditions for qualifying as a pure agent, which include making payments on behalf of the recipient upon authorization and not holding any title to the goods or services procured. The AAR found that the applicant did not fulfill these conditions as the electricity and water meters were in the applicant's name, and there was no authorization from the recipients to act as a pure agent. Therefore, the applicant does not qualify as a pure agent, and the reimbursement of expenses cannot be excluded from the value of supply.

3. Inclusion of Electricity and Water Charges in Monthly License Fee:

The applicant questioned whether the value of electricity and water charges should be added to the monthly license fee if the tenant pays for these services directly to the service provider, even though the meters remain in the applicant's name. The AAR did not provide a definitive answer to this hypothetical question, stating that the facts of the case did not lead to or show such a situation. The AAR emphasized that hypothetical questions based on mere assumptions cannot be answered without proper underlying facts.

Conclusion:

Order:

1. GST on Electricity and Water Charges: The AAR ruled that electricity and water charges paid by the applicant and collected from recipients on a reimbursement basis are liable to GST.
2. Pure Agent Status: The AAR ruled that the applicant does not act as a pure agent in this scenario.
3. Inclusion in Monthly License Fee: The AAR did not answer the hypothetical question regarding the inclusion of electricity and water charges in the monthly license fee if paid directly by the tenant to the service provider.

The judgment underscores the importance of understanding the scope of supply and the conditions for qualifying as a pure agent under the GST framework.