AAAR, Rajasthan has pronounced Appellate Advance Ruling on 17.1.2022, in the case of Harish Chand Modi (2022) 37 J.K.Jain’s GST & VR 171, that;
“The reimbursement of electricity expenses had not been made on actual basis, by the lessee to lessor as it had been collected in advance with rent and further adjusted by raising the invoice/bill/memo document by the lessor. As such, the appellant is not working as pure agent and condition of Rule 33(i), GST Rules is not satisfied. The Principal supply of services by the applicant (Lessor) is “Renting/Leasing of immovable property”, attracting GST @18% under SAC code 997212. Collection of electricity & other expenses by the Lessor for consideration are in relation to the composite supply of principal service of ‘renting of immovable property’, & would form part of taxable value in terms of S.15(2)(c), GST Act, 2017.”
1. Background.─The appellant had entered in a rent agreement with its tenant (Lessee) and had given 6 & 7th floor of its building at premises “Shanti One”, Jodhpur-342003 on lease to lessee. Appellant is supplier of Renting & Leasing of Immovable Property (SAC codes-997212). The appellant has not provided 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 appellant makes the payment to the electric company and in-turn collects such charges from the lessee. To make the system work, the appellant has 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.
As per rent agreement, the applicant had charged Rent, Maintenance charges, Interest, Security Deposit, JVVNL Electricity charges and DG electricity charges from tenant (Lessee). The appellant received advance in this regard from the lessee and made adjustment thereof in upcoming months/periods.
The only issue to discuss in this appeal is whether the act of recovering electricity expenses by the appellant is covered under the category of pure agent or Not?
2. Findings by ARA.─The provisions of Rule 33, CGST Rules, 2017 are related to pure agent, which are being reproduced here;
“33.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 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.
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.”
AAR has observed that in the instant case there is no clear authorization made by the lessee on which the supplier (lessor) acts as a pure agent of the recipient of the supply, when he makes the payment to the third party (2021) 36 J.K.Jain’s GST & VR 500. The rent agreement itself not become an authorization as nowhere in the said agreement has the ‘reimbursement’ term been mentioned. Further applicant (lessor) does not enter into a contractual agreement with the recipient (Lessee) of supply to act as pure agent to incur expenditure or costs in the course of supply of services. Hence, the act of working as a ‘pure agent’ has not been phrased out.
3. Analysis by ARA.─3.1 Thus, reimbursement of electricity expenses had not been made on actual basis, by the lessee to lesser as it had been collected in advance with rent and further adjusted by raising the invoice/bill/memo/ document by the lessor. Therefore, in the instant case, the so called reimbursement of electricity expenses would form part of taxable value in term of clause (c) S.15(2), CGST Act, 2017.
3.2 On perusal of agreement given with appeal memo, AAAR found that Clause 8(g) and (h) are related to electrical expenses. According to said clauses, only lessee is required to pay electric expanses to appellant. There is no authorization by the lessee to appellant to which third party, electric expenses shall be payable, therefore, condition No. (i) given u/rule 33, of CGST Rules, 2017 does not get satisfied.
3.3 Further, from the facts of the case, AAAR agreed with the observation of the AAR, Rajasthan in the instant case that reimbursement of electricity expenses had not been made on actual basis, by the lessee to lessor as it had been collected in advance with rent and further adjusted by raising the invoice/bill/memo/document by the lessor. Further, the appellant has failed to establish themselves as a pure agent. Therefore, in the instant case, the so called reimbursement of electricity expenses would form part of taxable value in term of S.15(2)(c), CGST Act, 2017.
4. Conclusion & Ruling by ARA.─Accordingly, AAAR held that appellant is not working as pure agent.
The appellant has stressed upon Ruling given by the Authority for Advance Ruling Gujarat in the case of Gujarat Narmada Valley Fertilizers & Chemicals Ltd. In this regard, we are of the opinion that these orders have not been passed by the higher forum than the present one; therefore, the same are not being considered.
5. Accordingly, appeal filed by the appellant is disposed off.
Author Bio
The AAR is not in accordance with the Law. Reimbursement of Electrical Charges are not liable to tax under GST. Supply of electricity by any means is Exempted from GST. High Court of Gujarath and Rajasthan have already given judgments on supply of electricity is an Exempted supply.