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2025 (3) TMI 1294 - AAAR - GSTLevy of GST on electricity and water charges which are being collected at actual by the Lessor from the Lessee - nature of supply - applicable rate of GST - HELD THAT - Duet India provides renting services along with other amenities like electricity water etc. Without these amenities/ facilities the building does not fetch any rental value. The intention of the Lessee is to avail the renting services provided by Duet India. A Lessee does not avail of amenities of electricity and water without availing the renting service. Thus no option is available to the Lessee. Further there must be an authorisation by Lessee on Lessor when he makes payment to Electricity Department. In the present case there is no sub-meter in the name of Lessee. Hence the question of Lessee authorising the Lessor to pay the charges does not arise. As such the prescribed conditions are not fulfilled for Duet India to be treated as a pure agent. The services of transmission of electricity and distribution of electricity are exempted under Notification No 12/2017-CT(R). The exemption entry covers consideration received for services supplied by way of transmission or distribution and not services in relation to transmission or distribution. Further the exemption at entry at SI No 25 of N/N. 12/2017-CT(R) is only available if the person is a Transmission or Distribution Licensee under the Electricity Act 2003. The Lessor in this case is neither a Distribution Licensee nor a Transmission Licensee. In any case even if the view of the Member-State was to be treated as correct it would not impact the rate at which tax is chargeable in the present case. Conclusion - As per Section 8(a) of the CGST Act the supply in the present case has to be treated as a supply of service of renting of immovable property i.e. the principal supply and shall be leviable to tax accordingly.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of GST on Electricity and Water Charges Relevant Legal Framework and Precedents: The determination of whether GST applies to electricity and water charges involves the interpretation of the Telangana Goods and Services Tax Act, 2017, specifically provisions related to composite supply and exemptions under Notifications No: 02/2017 and 12/2017-CT(R). Court's Interpretation and Reasoning: The Court examined whether the supply of electricity and water forms part of a composite supply with the renting of immovable property as the principal supply. The Court referenced CBIC Circular No: 206/18/2023-GST, which clarifies that when electricity is supplied bundled with renting of immovable property, it constitutes a composite supply, and the supply should be taxed as per the principal supply. Key Evidence and Findings: The agreement between the Lessor and Lessee indicated that electricity and water charges are borne by the Lessee based on actual meter readings. However, the Court noted that the provision of these utilities is essential for the enjoyment of the rented premises, thus forming part of the composite supply of rental services. Application of Law to Facts: Given the contractual obligations and the necessity of utilities for the effective use of the premises, the Court held that electricity and water charges are part of the composite supply of renting services, subject to GST as per the rate applicable to renting of immovable property. Treatment of Competing Arguments: The Lessee contended that electricity and water charges should be exempt from GST as they are reimbursements. However, the Court rejected this argument, emphasizing that the charges are integral to the rental service and do not qualify as separate supplies. Issue 2: Nature of Supply and Applicable GST Rate Relevant Legal Framework and Precedents: The nature of the supply is determined under Section 8(a) of the CGST Act, which addresses composite supplies and the taxation of the principal supply. Court's Interpretation and Reasoning: The Court concluded that the principal supply in this case is the renting of immovable property. Consequently, the entire supply, including electricity and water, should be taxed at the rate applicable to renting services. Key Evidence and Findings: The Court relied on the contractual terms and the CBIC Circular to establish that the provision of utilities is inseparable from the rental service. Application of Law to Facts: By treating the supply as a composite supply with renting as the principal component, the Court determined that the GST rate applicable to renting services should apply to the entire transaction. Treatment of Competing Arguments: The argument that Duet India acted as a 'pure agent' was dismissed as the conditions for such a classification under Rule 33 of the CGST Rules were not met. The Court noted the absence of authorization from the Lessee for the Lessor to act as a pure agent in paying utility charges. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning: "The principal supply is renting of immovable property and the supply of electricity is an ancillary supply. Even if the electricity is billed separately, the supplies will constitute a composite supply and therefore, the rate of the principal supply i.e., GST rate on renting of immovable property would be applicable." Core Principles Established: The judgment establishes that when utilities are essential for the use of rented premises, they form part of a composite supply with renting as the principal supply, subject to GST at the rate applicable to renting services. Final Determinations on Each Issue: The Court upheld the ruling of Member-Central, confirming that GST applies to electricity and water charges as part of the composite supply of renting services, with the applicable rate being that of renting of immovable property.
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