Today, there are many business entities which are operating under the roof owned by others. Also, it is not feasible for every entity to purchase land, construct building / factory on the same and commence their operations. Therefore, many manufacturing as well as service oriented business entities rent commercial buildings, factories, plants and other commercial spaces.
The consumption of electricity by manufacturing divisions as well as Information Technology units is quite high. Therefore, the electricity bill of those entities is particularly higher too. Keeping in mind that GST is applicable on commercially rented properties (building, factories, etc.) the leave and license agreement are entered into by the entities and are properly dealt with. However, the opinion with regards to the applicability of GST on the electricity amount paid by the tenant under the rent agreement is not sought at the time of rent agreement.
We as professionals at the time of scrutiny of books of accounts or at the time of dealing with the above mentioned situation should also pay attention to the applicability of GST on the amount of electricity bill paid by the tenant to the owner / electricity board. Also, attention needs to be paid towards the recovery of electricity bills by the builders / owners of commercial propertied rented by them from the tenants.
Therefore, the legal provisions regarding the same should be studied in detail. The provisions and the comments on the said provisions are as follows-
Section 2 (30)
“composite supply” means a 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, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Illustration: Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply.
Section 2 (31)
“consideration” in relation to the supply of goods or services or both includes –
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;
(b) the monetary value……………….. of any act ……. Provided that ……………….
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
(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
(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.
Conclusion – In view of above, electricity charges recovered as reimbursements, even if at actuals, would get covered as incidental expenses towards the value / consideration in connection with supply of renting services of commercial property which is the main supply and thereby would be liable to GST at the rate at which the rental service is liable to GST.
Also, the word commercial space is used frequently and specifically as renting of residential property / dwelling / unit is exempt from payment of GST and the incidental charges to the same would also be exempt from payment of GST.