Electricity charges recover on cost to cost basis is taxable ?, Service Tax

[ashwin mehta]

Dear Sir / Madam,

We are Mall company. We charged to our unit holder electricity on cost to cost basis i.e no margin.

Is service tax is applicable on this collection in today scenario.

Thanks & Regards,

Ashwin Mehta

Posts / Replies

[pankaj jain]

Service tax will not be applicable if you are acting like a pure agent.

[Ashutosh Gupta]

Correct!! However, in case of pure agent the obligation to pay the bill should have been in the name of the Tenent and not in the name of mall company. If Electricity bill is in the name of Mall company and Mall is recovering the cost from the tenant, then I think it is not a pure agent service and Service tax should have been charged in this scenario as it would not qualify as pure agent services. .

[Parimal Kalita]

D/ Ashwin,

It is not taxable at all as per the observation of the CESTAT MUMBAI in the case of M/s ICC REALITY (INDIA) PVT LTD & OTHERS Versus COMMISSIONER OF CENTRAL EXCISE 2013 (12) TMI 854 - CESTAT MUMBAI, where in the tribunal observed : "Electricity is goods chargeable to duty under Central Excise Tariff as well as under the Maharashtra Value Added Tax Act, 2002. Therefore, the supply of electricity to tenant amounts to sale of goods and not supply of service. Further the Notification No.12/03 ST dated 20/6/2003 exempt from service tax, any value of goods supplied by service provider to service recipient. Further in the case of M/s. Panchshil Tech Park Ltd. The Commissioner of Central Excise in the adjudication order held that electricity is goods and chargeable to Nil excise duty - Electricity charges collected from the tenants cannot be formed part of the assessable value for the purpose of service tax as provider of renting of immovable properties."

[Ashutosh Gupta]

Hi,

In addition to below, it would be good to refer to the below circular as well on this point.

Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise& Customs
Tax Research Unit
North Block, New Delhi

CIRCULAR NO 175 /01 /2014 – ST, Dated: January 10, 2014

To

Chief Commissioners of Central Excise and Service Tax (All), Director General (Service Tax), Director General (Central Excise Intelligence), Director General (Audit), Commissioners of Service Tax (All), Commissioners of Central Excise and Service Tax (All).

Madam/Sir,

Subject : Levy of service tax on services provided by a Resident Welfare Association (RWA) to its own members – regarding.

Service tax on 'club or association service' which covers Resident Welfare Association (RWA) was introduced with effect from 16.06.2005, vide section 65(105)(zzze) read with section 65(25a)[(25a) was later renumbered as (25aa)]. Under the positive list approach which was followed prior to 1 st July 2012, exemption was available under notification No. 8/2007-ST dated 01.03.2007, if the total consideration received from an individual member by the RWA for the services does not exceed three thousand rupees per month. This notification was rescinded vide notification No. 34/2012-ST dated 20 th June 2012, with effect from 1 st July, 2012.

2. Under the negative list approach, with effect from 1 st July, 2012, notification No.25/2012-ST [sl.no.28 (c)] provides for exemption to service by a RWA to its own members by way of reimbursement of charges or share of contribution up to five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members.

Certain doubts have been raised regarding the scope of the present exemption extended to RWAs under the negative list approach. These doubts have been examined and clarifications are given below:

Sl. No.	Doubt	Clarification
1.	(i) In a residential complex, monthly contribution collected from members is used by the RWA for the purpose of making payments to the third parties, in respect of commonly used services or goods [Example: for providing security service for the residential complex, maintenance or upkeep of common area and common facilities like lift, water sump, health and fitness centre, swimming pool, payment of electricity Bill for the common area and lift, etc.]. Is service tax leviable? (ii) If the contribution of a member/s of a RWA exceeds five thousand rupees per month, how should the service tax liability be calculated?	Exemption at Sl. No. 28 (c) in notification No. 25/2012-ST is provided specifically with reference to service provided by an unincorporated body or a non–profit entity registered under any law for the time being in force such as RWAs, to its own members. However, a monetary ceiling has been prescribed for this exemption, calculated in the form of five thousand rupees per month per member contribution to the RWA, for sourcing of goods or services from third person for the common use of its members. If per month per member contribution of any or some members of a RWA exceeds five thousand rupees, the entire contribution of such members whose per month contribution exceeds five thousand rupees would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members.
2.	(i)Is threshold exemption under notification No. 33/2012-ST available to RWA? (ii)Does 'aggregate value' for the pusrpose of threshold exemption, include the value of exempt service?	Threshold exemption available under notification No. 33/2012-ST is applicable to a RWA, subject to conditions prescribed in the notification. Under this notification, taxable services of aggregate value not exceeding ten lakh rupees in any financial year is exempted from service tax. As per the definition of 'aggregate value'provided in Explanation B of the notification, aggregate value does not include the value of services which are exempt from service tax.
3.	If a RWA provides certain services such as payment of electricity or water bill issued by third person, in the name of its members, acting as a 'pure agent' of its members, is exclusion from value of taxable service available for the purposes of exemptions provided in Notification 33/2012-ST or 25/2012-ST ?	In Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, it is provided that expenditure or costs incurred by a service provider as a pure agent of the recipient of service shall be excluded from the value of taxable service, subject to the conditions specified in the Rule. For illustration, where the payment for an electricity bill raised by an electricity transmission or distribution utility in the name of the owner of an apartment in respect of electricity consumed thereon, is collected and paid by the RWA to the utility, without charging any commission or a consideration by any other name, the RWA is acting as a pure agent and hence exclusion from the value of taxable service would be available. However, in the case of electricity bills issued in the name of RWA, in respect of electricity consumed for common use of lifts, motor pumps for water supply, lights in common area, etc., since there is no agent involved in these transactions, the exclusion from the value of taxable service would not be available.
4.	Is CENVAT credit available to RWA for payment of service tax?	RWA may avail cenvat credit and use the same for payment of service tax, in accordance with the Cenvat Credit Rules.

 

3. Trade Notice/ Public Notice to be issued. Hindi version to follow.

F. No.354/237/2013-TRU

[Raj Kumar Digvijay]
Under Secretary to the Government of India