Recovery of Electricity charges from supplier, Goods and Services Tax - GST

[Priyesh Mamnani]

Supplier A is providing service to Customer B at customer's place. Supplier is using Customer electricity for which customer makes recovery for the same. So whether recovery of electricity charges by customer from supplier will be liable to GST? What will be the impact?

Posts / Replies

[ABHISHEK TRIPATHI]

So, for instance, some carpenter/flooring guy using the electricity of the customer(recipient) for running their equipment. Happens mostly in every house/property during renovation/construction. Now the question is whether the electricity charge (at actual) recovered by the customer is leviable to GST?

GST is leviable on the supply of goods or supply of services. We have to see whether the action performed by the customer is (i) supply (if yes) then (ii) supply of goods or services. These activities performed by the customer is not ‘in the course and furtherance of business (this view is debatable however, I am of a strong view that these transactions are not even a supply). If is not even a supply then leviability is out of question.

The main problem exists on the other side, department may contest that the electricity charges should be added to the value of the supply, provided by the supplier (carpenter/flooring guy) per Section 15(2)(b) of the CGST Act.

[Priyesh Mamnani]

Whether it is considered as transmission or distribution of electricity?

[KASTURI SETHI]

Such supply is taxable under Heading No.9969 @ 18% vide Notification No.11/17-CT(R) dated 28.6.17 as amended (serial no.13). Exemption available under Notification no.12/17-CT(R) dated 28.6.17 as amended (serial no.25) is not admissible. One or two decisions of AAR are in your favour but most of the case laws on this issue are in favour of the department. Every case has its own facts and circumstance.

[ABHISHEK TRIPATHI]

Transmission and Distribution are covered under Electricity Act. The above facts has no relation whatsoever with transmission line or distribution line.

This is the exemption, "Transmission or distribution of electricity by an electricity transmission or distribution utility." Is the customer is an electricity transmission or distribution utility ?

[ABHISHEK TRIPATHI]

Dear KS Sir,

9969 - Electricity, gas, water and other distribution services. Isn't this entry is for the person in the business of these distribution services?

[KASTURI SETHI]

Sir,

I agree with you but the querist's query is silent about whether such distribution is in the course of business or not. Moreover, there are contradictory decisions of AAR on this issue. The query is too brief to arrive at some correct and concrete decision.

[Priyesh Mamnani]

It is not in course or furtherance of business

[KASTURI SETHI]

Sh. Priyesh Mamnani Ji,

If it is so, then follow Sh.Abhishek Tirpathi, Sir entirely. The supplier will have to prove this extent. The supplier's records/books of accounts should speak. At the same I suggest you go through all decisions of AARs word for word. Even a single word in the agreement can turn the tables. Sh.Abhishekh Tirpathi Sir has also touched this aspect.

[Himansu Sekhar]

It is part of the value. without electricity the service cannot be provided. If the total value suffered taxes, then why the recovery by the customer will again subject to tax?

[KASTURI SETHI]

Dear Sir,

Do you mean electricity charges are an integral part of the value of service supplied by A and hence already included as the element of cost ? If so, how this very fact can be ascertained from the query itself ? One has to examine the terms and conditions of the contract/agreement executed between A and B. Will you term such recovery as reimbursement ?

[Himansu Sekhar]

As gathered from the query, the Electricity charges are not provided free. Hence it appears the value is included. There is no question of charging gst on the said amount. Also gst on electricity is not leviable on the customer since he is outside the scope of sec. 7

[Ganeshan Kalyani]

Sir, the customer recovering money for electricity charges from the supplier is an income for the customer. If his turnover cross threshold limit then GST registration is required otherwise not.

[Ganeshan Kalyani]

Further, chances of asking to apply section 15(2)(b) of GST Act, 2017 provision by dept in this case is less. Also, the assumption that charges for electricity would be included in the value of service of the supplier of service is not correct. It is understood in the example that carpenter will only charge for furniture and his service charge and not for electricity as anyway he is not considering it as a cost to him.

[ABHISHEK TRIPATHI]

Point of taxation is income for GST. Would appreciated if the counter was to establish that the above situation is a "supply" and then "supply of goods or services" and then "threshold" and then "rate notification" (As I suggested it not to be a supply stating a reason). Anyway as it is income, will see turnover- straight problem solved. Rest in Peace Section 7 and Section 9. Following this logic selling a Rolls (turnover will cross the threshold) is also leviable to GST, OH !! while selling diamond necklace do pay your taxes. Everything is a supply no need of 'in furtherance of business' phrase.
Carpenter's equipment was said. No one said furniture. Equipment was said assuming that the electricity was used for running those equipment. So, why does Section 15(2)(b) came? It is because to run it's equipment the supplier (carpenter/flooring guy) will need electricity and the same is provided by the customer and the electricity charge is not included in the price paid or payable. For valuation, it has to be includable. Btw valuation is not the question for discussion, so will leave this.

S. 15 (2) The value of supply shall include–

..............

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;

[ABHISHEK TRIPATHI]

* "Selling a Rolls and Necklace by an Individual (Not Registered under GST)"

[Himansu Sekhar]

thanks for enriching discussions