In re Duet India Hotels (Hyderabad) Private Limited (GST AAAR Telangana)
Electricity & Water charges is bundled with renting, it is taxed as part of the composite supply, regardless of separate invoicing: AAAR Telangana
This ruling addresses a dispute regarding the Goods and Services Tax (GST) applicability on electricity and water charges collected by Duet India Hotels (Hyderabad) Private Limited from a lessee, The Curry House Food’s Private Limited. The lessee, operating a restaurant within the hotel, argued that these charges were reimbursements and not subject to GST, or alternatively, that these supplies were exempt. Duet India, the lessor, sought an advance ruling to clarify the situation. The Telangana State Authority for Advance Ruling (AAR) produced differing opinions between its members, leading to a referral to the Appellate Authority. The core issue was whether the electricity and water charges, collected at actuals, constituted a supply under GST and, if so, the applicable tax rate.
The Appellate Authority examined the leave and license agreement between the lessor and lessee, noting that the provision of electricity and water was integral to the enjoyment of the rented premises. It determined that these charges formed part of a composite supply, with the principal supply being the renting of immovable property. The authority referenced a CBIC circular clarifying that when electricity is bundled with renting, it is taxed as part of the composite supply, regardless of separate invoicing. The argument that Duet India acted as a “pure agent,” thus exempting the reimbursements, was dismissed. The ruling clarified that the conditions for a pure agent, as defined in the CGST Rules, were not met, as the services were not independent of the principal supply, and the lessee did not authorize the lessor to make payments to the electricity department. Furthermore, the exemption claim regarding electricity and water was rejected, as Duet India was not a licensed transmission or distribution entity. The Appellate Authority upheld the ruling of the Member-Central, confirming that GST is applicable to the electricity and water charges as part of the composite supply of renting immovable property.
