Electricity charges recovered from Tenant-GST, Goods and Services Tax - GST

[vignesh VSACCOUNTOPRIVATELIMITED]

Sir commercial property let out and seperate submeters are provided to tenant , but owner collects EB charges @ ₹ 12/- where as Govt charges ₹ 8/-, whether the amount of ₹ 12/- taxable or ₹ 4/- (12-8) taxable?

Posts / Replies

[YAGAY andSUN]

AAR – GST on reimbursement of electricity Whether electricity charges paid by landlord to electricity supply company 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?

Held: The applicant has cast an onus on the lessee to pay the charges in respect of the electric power used by them directly to the electricity company. 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. The decision would apply to specific agreement wherein the clauses of the agreement are specific to the effect that the lessee would bear the electricity expenses at actual and the value of renting of the immovable property is a fixed amount which becomes the value of supply in terms of the statutory provisions.

The electricity charges collected by the landlord from the tenant at actual based on the reading of the sub-meters is covered under the amount recovered as a pure agent in terms of the provisions of Rule 33 of the CGST Rules, 2017 in respect of the lessor. (Source: Order No. GUJ/GAAR/R/93/2020 dt. 17th September, 2020 by the Gujarat AAR in the case of M/s. Gujarat Narmada Valley Fertilizers & Chemicals Ltd. - 2021 (1) TMI 596 - AUTHORITY FOR ADVANCE RULING, GUJARAT) .

[Prakash Gupta]

After referring the said ruling which has been referred by YAGAY andSUN, can we conclude that the GST will be levied at ₹ 4 only ?

[NEERAJ KUMAR, RANCHI]

If the electricity charges received is in the form of re-imbursement on actual basis as per agreement, no tax is imposable. If not so GST will be applicable and not on ₹ 8/- but on ₹ 12/-

[KASTURI SETHI]

Sh.Vignesh Ji,

Pl. go through Rule 33 of CGST Rules read with C.B.E. & C. Flyer No. 26, dated 1-1-2018. Emphasis is laid on (d) below Explanation. In this scenario, Service Provider (Supplier) does qualify as pure agent. No exclusion from transactional value is allowed. GST will be paid on ₹ 12/-. Pl. note that to qualify as pure agent all conditions have to be fulfilled. Terms and conditions of rent deed have to be read carefully.

RULE 33 of CGST Rules. Value of supply of services in case of pure agent. - Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely, -

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation. - For the purposes of this rule, the expression “pure agent” means a person who -

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

There are decisions of AARs in your favour but subject to Rule 33 of CGST Rules.

[YAGAY andSUN]

If any mark-ups are being charged even by Pure Agent, then in such conditions it cannot be claimed that pure agent concept will prevail. GST will be levied and accordingly will be paid on such markedup transactions on the gross amount charged.

[Rohit Kalyani]

I am of the view that would be leviable to GST in view of the judgment of Clautta HC in Srijan Realty Pvt. Ltd v. Commissioner of Service Tax - 2019 (3) TMI 821 - CALCUTTA HIGH COURT

[YAGAY andSUN]

Dear Rohit,

Please share the Gist of the judgment which you have referred here.

Regards,

YAGAY and SUN

[Shilpi Jain]

Show the electricity charges separate.y without mark up -rs 8. No gst on ₹ 8.

Remaining amount would be a composite supply of renting.

[KASTURI SETHI]

M/s.Ygay and Sun,

Dear Sir, The above case law is posted below :-

SRIJAN REALTY (P) LTD. Versus COMMISSIONER OF SERVICE TAX, KOLKATA - 2019 (3) TMI 821 - CALCUTTA HIGH COURT