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TMI Blog2019 (4) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... o conduct business of running a Theatre. As such applicant is providing more than two services such as renting of immovable property, supply of power through DG set and water through RO besides cooking fuel. Composite supply or mixed supply? - Held that:- The renting of immovable property would be the main supply and provision of other utilities such as electricity, and water supply, fuel etc. would be in the nature of ancillary supply which help in better enjoyment of the main supply that is Theatre. Principal supply or main supply basically signifies the supply of goods or services that is formed as a substantial constituent of a composite supply and any other supply being ancillary - the utility charges in the nature of electricity charges and water reimbursed by the applicant from lessee forms part of composite supply. The value of supply includes all amounts that pertains to specific supply for the purpose of levy of tax except, subsidies provided by the government and the value of discount. However, as per Rule 33 of GST Valuation Rules, 2017 the expenditure or cost incurred by a supplier, as a pure agent of the recipient of the supply shall be excluded from the value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the GST Act . 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim , could be seen thus- 3.1 STATEMENT OF THE RELEVANT FACT SHAVING A BEARING ON THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED The application is being filed by E-SQUARE LEISURE PRIVATE LIMITED (hereinafter referred as E-square or Applicant or the Company ); having GSTIN 27AAACG5176C1ZT and is engaged in the business of exhibition and business services, accommodation in hotels, inn, guest house, club or camp site, etc services, and restaurant services; submits that, The Company intends to enter in to a contractual agreement of renting of immovable property with the lessee for leasing of the immovable property for rent. Apart from rent, E-Square also plans to collect expenses of electricity, water charges, property tax and cooking fuel from the lessee. Further, the aforesaid electricity, water charges, property tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; b) c) d) We submit that, to qualify a certain transaction as supply the condition given below are required to be satisfied A. Supply includes all forms such as sale, transfer, barter etc. Of goods and service. B. Said transaction shall be made or agreed to be made for a consideration C. Two or more person shall be involved (By one person to another) D. in the course or furtherance of business Hence, it is essential to analyse whether all the conditions as above are satisfied in case of reimbursement of expenses Reimbursement is nothing but to repay for certain expenses incurred by the person on behalf of other. e.g. in case of electricity the supply of transmission is from the State Electricity Board hence it could be construed that Lessor has not supplied any goods or services but incurred certain expenses in relation to property which lessee is liable to pay. Erstwhile, in Finance Act, 1994 there were plethora of judgement wherein it was held that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the appeal filed Revenue is dismissed 4 Sercon India Pvt. Ltd. [2013 (30) S.T.R. 454 (Del.)] = 2013 (3) TMI 449 - DELHI HIGH COURT Having examined the matter at some length, we find that, prima facie, the issue of levying and charging service tax on reimbursable expenditure has been settled by the decision of this Court in Intercontinental Consultants and Technocrats Pvt, Ltd (2012 (12) TMI 150 - DELHI HIGH COURT) . Therefore, prima facie, the amount of 14.22 crores, which has been actually received by the petitioner from its clients towards reimbursement of expenses, could not be the subject matter of service tax. Also, we submit that, what the Lessor recovers from the Lessee by way of reimbursement of water charges, electricity charges, taxes etc, do not have the character of revenue or value addition in the hands of the Lessor. Also, it is important to note that water, electricity charge, taxes etc. has a co-relation with exact quantity of water or electricity consumed, hence, it is variable on the basis of usage whereas component of rent is always fixed by way of contractual agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Neither holds nor intends to hold any title to the goods or services so procured or supplied as pure agent of the recipient of supply Refer Para 2.5-216 One of the condition to qualify Pure Agent is Neither holds nor intends to hold any title to the goods or services so procured or supplied as pure agent of the recipient of supply What constitutes as a title in goods is not defined GST law. In the ordinary parlance, title means the ownership. it is important to note that, electricity or other connections are generally registered in the name of the owner, At the time of renting, right to use electricity is implied right given to the lessee. Hence, the question under consideration is whether implied right or possession constitute title in goods or service or both. In the law of property, title in its broadest sense refers to all rights that can be secured and enjoyed under the law. It is frequently synonymous with absolute ownership. However, the term does not necessarily imply absolute ownership, however; it can also mean mere possession or the right thereof. Given this, it could be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be included in the value for the purpose of GST except where benefit of Pure agent as provided in Rule 33 of CGST Rules, 2017 is availed. Given the aforesaid, even the property taxes recovered from the tenant could be liable to GST. Thus, we are seeking clarity on the aforesaid as to whether the GST will be applicable on the reimbursement of electricity charges, property tax, water charges etc. which are recovered at actual. Also clarify whether E- square can be treated as a pure agent? If reimbursement of expenses qualifies as supply as defined under section 7 of the CGST Act what is the rate of GST applicable? Another school of thought is that reimbursement of expenses by the lessor from the lessee forms the part of consideration received towards rented property. Given this, it is important to analyse the other conditions of the supply No. Conditions Remark 1 Transaction is made or agreed to be made for a consideration Consideration is defined under Section 2(31) of the CGST Act, includes the monetary value of any act or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is a subject matter of State Government and no GST is to be levied on same. Further, we would like to bring your kind attention that it is well settled through a Panthera of judgments from the Apex Court that electricity is goods ? No. Case Law Judgment 1 Madhya Pradesh Electricity Board, Jabalpur [2002- TIOL- 226-SC-CT LB] = 1968 (11) TMI 85 - SUPREME COURT OF INDIA It was held that, electricity is goods for the purposes of imposition of sales tax under the Madhya Pradesh General Sales Tax Act, 1959 . 2 National Thermal Power Corpn. Ltd (2002-TIOL-107-SC-CT) = 2002 (4) TMI 694 - SUPREME COURT OF INDIA held that electricity, though an intangible object is goods covered by Entry 54 of List Il of Schedule VII to the Constitution of India 3 M/s. ICC Reality (India) Pvt Ltd. (2013-TIOL-1751-CESTAT-MUM) =2013 (12) TMI 854 - CESTAT MUMBAI We find that as per the provisions of Maharashtra Value Added Tax Act, 2002, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of goods or services or both, or any combination thereof which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply; 2.3 As per the definition the following are the essential characteristic of the Composite Supply made by a taxable person to a recipient: consisting of two or more taxable supplies of goods or services or both, or any combination thereof Said supply is naturally bundled and supplied in conjunction with each other in the ordinary course of business. One of which is a principal supply as defined under section 2(90) of the CGST Act. Further, as per section 8 of the CGST Act, the tax liability on a composite or a mixed supply shall be determined in the following manner, namely a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and b. Given he aforesaid, it could be constructed that, the GST rate applicable to reimbursement of expenses is the rate as applicable to principle supply However, said rate is applicable subject to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 specified conditions are satisfied. (2) There are three conditions prescribed in Rule 33 of CGST Rules: (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization 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. (3) Further, Rule 33 of CGST Rules defines pure agent as under: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract was for clearance of goods and delivery to the Importer at the price agreed upon in the contract. In such case, the Customs Broker would be using the transport service for his own interest (as the agreement requires him to deliver the goods at the importers place) and thus would not be considered as a pure agent for the services of transport procured. (16) Given this, we will submit that, contractual agreement specified in the said rule is between the person who entered in to contract to provide main service and act as a pure agent to incur certain expenses which are required to supply main service. (17) Accordingly, we submit that the condition as specified in Rule 33 of Determination of Value of Supply with respect to contractual agreement is satisfied. Methodology of monitoring the system to track water and electricity consumption of building i) The Company has installed IBMS Project of Siemens Building Technologies Ltd 2018 to monitor the energy and water consumption of the buildings. ii) This system integrates all the third-party systems to ensure more visibility on the energy data and water consumption through energy meter integration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the Company has installed Siemens technology for recovery of the electricity charges based on respective consumption. 3. The pure agent does not use the goods or services so procured in his own interest . The electricity charges are to be recovered on the basis of Actual usage of the lessee. It is to be noted that invoice is not yet raised on Lessee . 4. Neither, hoIds nor intends to hold any title to the goods or services so procured or supplied as pure agent of the recipient of supply What constitutes as a title in goods is not defined GST law. In the ordinary parlance, title means the ownership. It is important to note that, electricity or other connections are generally registered in the name of the owner. At the time of renting, right to use electricity is implied right given to the lessee. In the instant case as tenant uses the electricity, the supplier Neither holds nor intends to hold any title to the goods or services so procured . Para 2.5 - 2.16 of the original submission of Interpretation of Law And / Or Facts has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement with Carnival Films Private Limited (herein under referred as Lessee ). Hence, the terms of the agreement were not final. Given this, we had applied for the determination of GST liability on the expenses which we were intent to collect from lessee. However, it is to be noted that, in the registered agreement the Company has agreed to reimburse the expenses given below at actual Electricity charge Water Supply Given the aforesaid, we submit that kindly consider the revised details of reimbursement of expenses given below for determination of GST liability. Electricity charge Water Supply 04. CONTENTION - AS PER THE CONCERNED OFFICE The submissions, as reproduced verbatim , could be seen thus- Issues on which advance ruling is sought are 1. Whether GST is to be levied on reimbursement of expenses from the lessee by the lessor at actuals? 2. In case GST is to be levied, what is the rate of GST applicable to said reimbursed expenses? With reference to facts as per Annexure I, additional information was sought from Vaishali Kharde, Chartered Accountant, regarding method for at actual determination of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred in the capacity of pure agent . For ready reference, Rule 33 of CGST Rules is reproduced as follows: Rule 33. Value of supply of services in case of pure agent, Notwithstanding anything contended in the provisions of this Chapter, the expenditure or costs incurred by 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 authorization 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 the supply are in addition to the services he supplies on his own account. Explanation - For the purpose 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. In case GST is to be levied, what is the rate of GST applicable to said reimbursed expenses? Supply of services- renting of premises and supply of electricity, potable water are, not naturally bundled nor are they supplied in conjunction with each other in ordinary course of business. Therefore, such supplies are not composite supply as per section 2(30) of the CGST Act. Further, as per terms of contractual agreement, electricity charges and water charges are charged in addition to rent. As per verbal contention, these charges are intended to be collected separately in the outward supply invoices, on as actual basis. Therefore, this is not a mixed supply, as provided under section 2(74) of the CGST Act. Therefore, reimbursed expenses, if collected separately, will be liable to tax at scheduled rates. 05. HEARING The Preliminary hearing in the matter was held on 12.09.2018, Sh. Pritam Mahure, C.A., along with Ms. Vaishali Kharde, C.A. appeared and made oral and written submissions for admission of application as per detailed contentions made in their ARA submissions. Jurisdictional Officer Ms. Kiran Sonawane, Dy. Commr. Of S.T.(E-201 ), Pune appeared and stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement as below: Section II - Recitals WHERE AS: I. The Lessor is the absolute, exclusive and lawful owner and is otherwise well and sufficiently entitled to the Theatre more particularly described in Schedule: I hereunder. II. The Complex including the Theatre is constructed in accordance with the sanctioned plans duly approved by the Pune Municipal Corporation (PMC) on the piece of land purchased by the Lessor from. Ms. Tara Gopalji Bhuta by executing Deed of Indenture dated 1.7.03.1987 registered at the office of the Sub-Registrar at Haveli No. I having registration number 3724/2/12 III. The Lessee has represented to the Lessor that, it owns and/or operates several Multiplex theatres in various cities all over the country and has established for itself high reputation and considerable goodwill in such business and has been operating Cinemas under the brand name Carnival Cinemas and shall run and operate the Theatre under the name of E-Square Carnival cinemas. IV. After negotiations between the Parties, the Lessor has agreed to lease out the Theatre into the lessee and the lessee has agreed to take over the Theatre on lease, to conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 167/- 7 th Year to 9 th Year 38,57,292/- 10 th Year to 12 th Year 44,35,885/- 13 th Year to 15 th Year 51,01,268/- 16 th Year to 18 th Year 58,66,458/- The Rent is exclusive of applicable GST and/or any other indirect Taxes or cesses by whatever name called which Lessor may require to pay either at the commencement of this DEED or any time during the Tenure of lease by reason of Lessor giving the Theatre to the Lessee on lease excluding any taxes levied on the Theatre building (property tax). The Rent shall be subject to deduction of tax at source in accordance with applicable laws. The Rent shall be paid by the Lessee to the Lessor on or before the say of the succeeding month i.e. in arrears. Lessor shall raise invoice for the Rent received 8. UTILITY CHARGES:- In addition to the Rent, the Lessee shall also be liable to pay the following: (i) electricity charges (including running cost of DG HVAC) for electricity consumed in the Theatre and for any Signage of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpliance/ error is pot rectified in a timely manner, then the lessor shall have to pay the amount of GST charged along with the interest. Penalty and/or any other cost. 10 SECURITY DEPOSIT AND GST THEREON: a) The Lessee shall deposit with the lessor an amount of ₹ 57, 50,00,000/- (Rupees. Fifty Seven Crore Fifty Lakh only) towards interest, Free Refundable Security Deposit ( Security Deposit ) in the following manner: (i) ₹ 8,62,50,000/- (Rupees Eight Crore Sixty Two lakh Fifty Thousand only) has already been paid by the Lessee to the lessor receipt whereof is hereby acknowledged by the Lessor; and (ii) ₹ 48,87,50,000/- (Rupees Forty Eight Crore Eighty Seven Lakh Fifty Thousand only) shall be paid simultaneously with the registration of Lease Deed. b) Lessor will seek advance ruling of the applicabiliL0fGST on the Security Deposit. In case, if the ruling states that GST is applicable on the Security Deposit or if there is a demand of GST from the concerned Government department, then lessee hereby agrees to forthwith reimburse the appropriate GST on the security deposit with interest and penalty, if any, and to indemnify and keep indem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppoint specialized service provider, agency or agencies (hereinafter referred to as CAM Agency) entrusting them the responsibilities to provide the CAM Services. However, any such appointment shall absolve the Lessor from fulfilling its obligations towards the Lessee relating to CAM Services and in the event of default or deficiency on part of CAM agencies in fulfilling its obligations towards the lessee, the lessee shall be entitled to call upon the lessor to rectify the default or deficiency on the part of CAM Agencies by giving written notice and the lessor shall be bound to rectify any default or deficiency on the part of the lessor/ CAM Agencies in fulfilling its obligations towards the lessee within 72 hours from the date of notice. (b) if the services provided by Lessor or its nominated agency are deficient with respect to CAM Services for a continuous period of more than 7 (seven) days, then the Lessee shall have the liberty to do And deeds for and on behalf of the lessor and at the Lessor s cost to remove such deficiency. The lessee shall raise an invoice along with GST on the cost incurred on the lessor and lessor shall pay the same within 15 days of receipt of inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portionate rent per screen for a period closure for such renovation not exceeding 30 days. Such activity shall be done as per the mutual consent of the Parties. No structural changes will be permitted during such refurbishment, repairs and renovation without the written consent of the lessor, 14. PARKING AREA - 15. HOARDINGS/SIGNAGE - 16. LESSOR S REPRESENTATIONS COVENANTS: 18. LESSEE S ASSETS From the conjoint reading of above clauses of the agreement we find applicant has agreed to lease out the Theatre which is an immovable property to lessee to conduct and operate the Theatre for rent. As per entry no. 5 (a) of Schedule II - Activities of Transaction to be treated as supply of Goods or supply of Services; renting of immovable property is a supply of services and liable to tax under the provisions of GST Act. We strongly feel that Theatre business will not be organic unless it is accompanied with supply of power and water. The utilities such as electricity, supply and water supply are basic amenities subject to which competent authority will not issue No objection Certificate to conduct business of running a Theatre. As such applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lessee forms part of composite supply. The second line of argument adopted by the applicant is that even if the reimbursement is construed as a supply under the GST Act, tax can not be levied as the expenses are incurred by them as pure agent . Section 15 of CGST Act which has assigned meaning to the expression transaction value . is reproduced as below: Value of taxable supply. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. (2) The value of supply shall include- (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the Central Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; (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 payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorization 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 the supply are in addition to the services he supplies on his own account. Explanation - For the purpose 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. Therefore the issue before us is to decide whether on the facts of the transaction the applicant can be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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