2021 (1) TMI 596 - AAR - GST

Liability of GST - landlord charges electricity or incidental charges in additional to rent as per Lease Agreement for immovable property rented to the tenant - Is landlord liable to pay and recover GST from tenant on electricity or incidental charges charged by it? - electricity charges paid by landlord to Torrent Power Ltd. (the supplier of electricity) for electricity connection in the name of landlord and recovered based on sub meters from different tenants (the legal liability to pay electricity bill to Torrent Power Ltd. is that of landlord) - Pure services of the tenant or not. Scope of Advance Ruling - HELD THAT - The latter part of the first question raised by the applicant to the effect whether they are liable to recover GST from the tenant on the electricity or incidental charges charged by it is outside the purview of the scheme of advance ruling. The Advance Ruling authorities can only give a decision whether the applicant are liable to pay GST on such charges or otherwise. Whether such GST (if paid) can be recovered from the tenant or otherwise is a civil matter which has to be decided in terms of the agreement entered into by the two parties and the Advance Ruling authority is not empowered to comment on such issues - The Advance Ruling is restricted to following questions a. When landlord charges electricity or incidental charges in addition to rent as per Lease Agreement for immovable property rented to the tenant, is landlord liable to pay GST on electricity or incidental charges charged by it? b. Can electricity charges paid by landlord to Torrent Power Ltd. (the supplier of electricity) for electricity connection in the name of landlord and recovered based on sub meters from different tenants be considered as amount recovered as pure agent of the tenant when the legal liability to pay electricity bill to Torrent Power Ltd. is that of landlord? In the instant case, there is no charge towards commission and packing and as such the same is ruled out. Thus, the only two possible inclusions are the incidental expenses and amount charged for anything done by the supplier. The includible charges are to be examined in terms of the language employed in the statute vis- -vis the terms and conditions of the agreement and would depend on case to case basis. Thus, the question to the effect whether incidental charges are includible in the value of supply is not answerable in general terms. The facts of each case would be different and such decision would be applicable based on the facts of each case. Therefore, we are discussing the matter only in respect of the specific case in terms of the agreement entered into by the applicant with the CGST department and the discussions and decision would not apply to other agreements. The charges towards electricity is covered under clause 9 of the agreement which is independent of clause 3 and the same stipulates that the Govt. of India shall pay all charges in respect of electric power, Air-conditioning charges, light and water used along with the applicable taxes thereon. Careful scrutiny of the clause indicates that the supplier of the service has made it mandatory that the Govt. of India is required to pay all the charges in respect of electric power used - In view of such an agreement, it cannot be said that the electricity charges would be covered by Sec. 15(2)(c) of the CGST Act, 2017 for the sole reason that the rate for renting of premises has been fixed at an amount and the electricity charges are to be borne by the lessee as per the actual usage of electric power by them in terms of the agreement. Accordingly, the said amount would not be includible in the value of supply. It is reiterated here that the decision would apply to this specific agreement in as much as the clauses of the agreement are specific to the effect that the lessee would. The second question to the effect whether such expenses incurred by the applicant would be considered as charges taken in the capacity of a pure agent or otherwise. This question gains importance owing to the fact that the applicant has not provided a separate electric meter to the lessee in the instant case and as such the lessee cannot make the payment of electric charges directly to the electric company. In such circumstances the applicant makes the payment to the electric company and in-turn collects such charges from the lessee. To make the system work, the applicant have installed sub-meters and they collect the charges of the electric power used by the lessee as per the usage of power ascertained from such sub-meter - the lessee was supposed to pay the electricity charges directly to the electric company as per the actual usage in terms of the agreement. However, for the failure of the lessor to obtain a separate electric meter for the premises rented to the lessee, they have mutually agreed to collect the electric charges on the basis of actual usage based on the sub-meters and onward payment to the electric company. At this juncture, it is noteworthy to mention that the lessee is Govt. of India and as such would by no means pay any amount in excess or lower than the actual electric power used by them. With a purpose to ensure such actual payment, the lessor i.e. the applicant has installed a sub-meter for the lessee. Thus, it is purely a reimbursable expense made by the lessee which is collected on actual usage of the electric power. Secondly, if at all the amount was not be charged on actual usage basis, it would have been all the more easier for both the parties to fix a certain amount towards electricity charges in the agreement itself. However, this has not been done which clarifies the intent of both the parties that the charges towards electric power usage would be on actual basis. It is clear that the agreement contains an inbuilt clause of actual payment of electric charges by the lessee directly to the electric company. However, due to lack of infrastructure on the part of the lessor, there is a silent agreement between both the parties that the applicant will collect the actual usage charges on the basis of the reading of the sub-meter and in-turn pay the same to the electric company. Since this arrangement has been on-going since such a long time, it can be clearly said that there is a mutual understanding between both the parties and such mutual understanding is also an called an agreement in terms of the provisions of the Indian Contract Act, 1852. Thus, the conditions of Rule 33 of the CGST Rules, 2017 also stand satisfied in the instant case and as such it is concluded that the electricity expenses incurred by the applicant on behalf of the lessee have been incurred in the capacity of a pure agent.

Summary

Issues Involved:
1. Liability of landlord to pay and recover GST on electricity or incidental charges in addition to rent.
2. Consideration of electricity charges paid by the landlord and recovered from tenants as amounts recovered as a pure agent.

Issue-wise Detailed Analysis:

1. Liability of landlord to pay and recover GST on electricity or incidental charges in addition to rent:

The applicant, M/s. Gujarat Narmada Valley Fertilizers & Chemicals Ltd. (GNFC), entered into a lease agreement with the President of India for renting immovable property and providing interior infrastructure. The applicant charged GST on the total rent, including electricity charges, until 30.06.2017. However, from 01.07.2017, the CGST department stopped paying GST on electricity charges, citing Rule 33 of the CGST Rules, 2017.

The applicant argued that electricity charges are incidental expenses related to the principal service of renting immovable property and should form part of the taxable supply value under Section 15 of the CGST Act, 2017. The applicant sought an advance ruling on whether they are liable to pay and recover GST on electricity charges in addition to rent.

The ruling authority noted that the agreement specified a fixed rent amount of ?20,80,848/- per month, which included internal infrastructure but did not mention electricity charges. Clause 9 of the agreement mandated that the Govt. of India pay electricity charges directly to the concerned supplier. The ruling concluded that electricity charges are independent of the rent and are not includible in the value of supply under Section 15(2)(c) of the CGST Act, 2017. Therefore, the landlord is not liable to pay GST on electricity charges.

2. Consideration of electricity charges paid by the landlord and recovered from tenants as amounts recovered as a pure agent:

The applicant paid electricity charges to Torrent Power Ltd. and recovered them from tenants based on sub-meter readings. The applicant argued that they were not acting as a pure agent since the electricity bill was in their name, and there was no formal authorization to act as a pure agent.

The ruling authority examined the agreement and noted that the lessee (Govt. of India) was supposed to pay electricity charges directly to the electric company. However, due to the absence of a separate electric meter, the applicant installed sub-meters and collected charges based on actual usage. The ruling concluded that the applicant acted as a pure agent, collecting reimbursable expenses for electricity charges based on actual usage. The conditions of Rule 33 of the CGST Rules, 2017, were satisfied, and the electricity charges were considered amounts recovered as a pure agent.

Ruling:

1. The electricity charges collected by the applicant are not covered under the provisions of Sec. 15(2)(c) of the CGST Act, 2017, and are not includible in the value of supply.
2. The electricity charges collected by the landlord from the Govt. of India based on sub-meter readings are covered as amounts recovered as a pure agent under Rule 33 of the CGST Rules, 2017.