2022 (2) TMI 994 - AAR - GST

Valuation - reimbursement of electricity expenses, on actual basis, by the lessee to lessor - forming part of taxable value or not - levy of GST on the reimbursement of expenses from the lessee by the lessor at actuals - rate of GST applicable to said reimbursement of expenses - pure agent services or not - HELD THAT - It is observed that Principal supply of services by the lessor is renting of immovable property . Electricity charges or incidental charges, maintenance charges are in relation to composite supply of principal service of renting of immovable property, any incidental charges or expenses in respect of supply of service shad form part of value of taxable supply in terms of clear provisions of Section 15 of the CGST Act, 2017. The electricity expenses/charges related clause is mentioned in para 8(g) of the agreement - the payment regarding the electricity expenses is collected by the Lessor by issuing invoice for the same. Hence, there is a established fact that supply of service has been made to the lessee for consideration by issuing invoice(s). As far as expression 'Pure Agent' is concern, in the instant case there is no clear authorisation made by the lessee on which the supplier (lessor) acts as a pure agent of the recipient of the supply, when he makes the payment to the third party. The rent agreement itself not become an authorisation as nowhere in the said agreement has the 'reimbursement' term been mentioned. Further applicant (lessor) does not enter into a contractual agreement with the recipient (Lessee) of supply to act as pure agent to incur expenditure or costs in the course of supply services. Hence, the act of working as an 'pure agent' has not been phrased out. Thus, reimbursement of electricity expenses had not been made on actual basis, by the lessee to lessor as it had been collected in advance with rent and further adjusted by raising the invoice/bill/memo/document by the lessor. Therefore, in the instant case, the so called reimbursement of electricity expenses would form part of taxable value in term of clause (c) subsection (2) of section 15 of the CGST Act, 2017. In the instant case, the applicant had not acted as pure agent and invoice/bill/memo/document issued in relation to collect Electricity charges or incidental charges, maintenance charges, are in relation to composite supply of principal service of renting of immovable property as any incidental charges or expenses in respect of supply of service shall form part of value of taxable supply. Since the principal supply provided by the applicant (here Lessor) is of Renting Leasing of Immovable Property (sac codes- 997212), it will attract GST @ of 18% of the taxable value of supply.

Summary

Issues Involved:
1. Whether reimbursement of electricity expenses, on actual basis, by the lessee to lessor would form part of taxable value.
2. Whether GST is levied on the reimbursement of expenses from the lessee by the lessor at actuals.
3. What is the rate of GST applicable to said reimbursement of expenses.

Issue-Wise Detailed Analysis:

1. Reimbursement of Electricity Expenses as Part of Taxable Value:
The applicant, a registered assessee under GST laws, entered into a rent agreement to lease parts of its building and sought clarity on whether the reimbursement of electricity expenses from the lessee would form part of the taxable value. The applicant argued that these reimbursements should not be taxed as they are purely on actual basis and the applicant acted as a "pure agent" under Rule 33 of the CGST Rules, 2017.

However, the authority observed that the principal supply by the lessor is "renting of immovable property," and any incidental charges, including electricity expenses, are in relation to this composite supply. The rent agreement indicated that the lessor would issue invoices for all services, including electricity expenses, which implies that these charges are not merely reimbursements but part of the taxable supply.

2. GST on Reimbursement of Expenses:
Given that the electricity charges are part of the composite supply of renting immovable property, the authority concluded that GST is applicable on these reimbursements. The applicant did not meet the criteria of a "pure agent" as defined under Rule 33, since there was no clear authorization from the lessee, and the term "reimbursement" was not explicitly mentioned in the agreement. The lessor's collection of electricity charges in advance and subsequent adjustment further indicated that these are not pure reimbursements.

3. Rate of GST Applicable:
Since the principal supply is renting and leasing of immovable property, the applicable GST rate is 18% (9% CGST and 9% SGST). This rate applies to the entire value of the composite supply, including any incidental charges such as electricity expenses.

Conclusion:
The authority ruled that the reimbursement of electricity expenses by the lessee to the lessor forms part of the taxable value and is subject to GST. The applicable GST rate for these reimbursements, as part of the composite supply of renting immovable property, is 18%.