Case Law Details
In re Mega Flex Plastics Ltd (GST AAR West Bengal)
Authority for Advance Rulings (AAR), West Bengal, examined whether GST applies to the reimbursement of electricity charges collected by Mega Flex Plastics Ltd from its sub-lessee, White Saffron Grains LLP. The applicant had leased warehouse space under a sub-lease agreement, with provisions for the sub-lessee to reimburse electricity costs based on actual consumption. The company sought an advance ruling under Section 97 of the GST Act to clarify its tax liability on such reimbursements. The revenue department did not oppose the application, and the matter was admitted for review.
The applicant argued that under Rule 33 of the CGST Rules, 2017, it qualifies as a “pure agent” since it merely facilitates electricity supply without adding any markup. The rule defines a pure agent as one who pays expenses on behalf of another party without taking ownership of the goods or services. The company submitted that electricity charges collected from the sub-lessee are not part of the taxable supply under GST since the applicant neither supplies electricity nor profits from its cost. The applicant relied on Circular No. 206/18/2023-GST, which clarifies that real estate owners, housing societies, and developers acting as pure agents for electricity supply are not liable to pay GST on reimbursements.
The AAR reviewed the lease agreement and relevant clauses, which specified that the sub-lessee was responsible for paying electricity charges based on sub-meter readings. The authority also examined the ruling in Prinsep Association of Apartment Owners, where it was held that if electricity costs are bundled with maintenance services and not separately billed, GST applies. However, in the present case, the applicant issued separate invoices specifically for electricity reimbursements, following the formula based on actual consumption and the electricity provider’s bill. Given this distinction, the AAR concluded that the applicant met the conditions of a pure agent.
Citing the government circular and precedent, the AAR ruled that Mega Flex Plastics Ltd is not liable to pay GST on the reimbursement of electricity charges from its sub-lessee. The decision aligns with prior interpretations, reinforcing that pure agent transactions are not subject to GST when billed separately and without markup. This ruling provides clarity for businesses engaged in sub-leasing arrangements and similar agreements where actual cost reimbursements are involved.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING WEST BENGAL
1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression “GST Act” would mean the CGST Act and the WBGST Act both.
1.2 The applicant has taken a land on lease situated in the ‘Howrah Poly Park‟ for a period of 99 years by a Deed of Lease executed with the West Bengal Industrial Development Corporation Limited (WBIDC) with a right to transfer or mortgage or assign its leasehold interest.
1.3 The applicant has developed the said land and has constructed factory building & warehouse over the said land. The applicant has let out a warehouse space vide a deed of Sub-Lease to White Saffron Grains LLP (here in after referred to as sub-lessee) for a period of ten years commencing from April 1, 2022 for putting up a manufacturing unit against a lease rent payable monthly by the Sub-Lessee to the applicant.
1.4 The applicant, in addition to the lease rent mentioned above, is also entitled to reimbursement for electricity charges on an actual basis as specified in the agreement.
1.5 The applicant has made this application under sub section (1) of section 97 of the GST Act and the rules made there under seeking an advance ruling in respect of following questions:
Whether GST is liable to be paid on reimbursement of electricity charges on actual basis?
1.6 The aforesaid questions on which the advance ruling is sought for are found to be covered under clause (e) of sub-section (2) of section 97 of the GST Act.
1.7 The applicant states that the questions raised in the application have neither been decided by nor are pending before any authority under any provision of the GST Act.
1.8 The officer concerned from the Revenue has raised no objection to the admission of the application.
1.9 The application is, therefore, admitted.
2. Submission of the Applicant
2.1. It is submitted by the applicant that in terms of Section 15 of the Central Goods and Services Tax Act, 2017 “the value of 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.”
2.2 The applicant submits that Rule 33 of the CGST Rules, 2017 provides that 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 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 an 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 amount received for supply he provides on his own account.
2.3 It is submitted that in the present case, an agreement has been entered between the applicant and the sub-lessee. As per the terms of the agreement, the applicant has allowed the lessee to use the premises against the payment of a monthly Lease Rent as consideration. In addition to the monthly Lease Rent, the applicant is collecting the electricity charges at actual as per the meter reading.
2.4 The applicant states that, in the present case, the agreement entered by the applicant is towards supply of services i.e. renting of the premises to the sub-lessee. The applicant being the owner of the licensed premises receives the electricity bills in its name and pays the same to the concerned authorities.
2.5 The applicant determines the electricity charges attributable to the premises as per the sub-meter readings and collects the same from the sub-lessee as reimbursement of expenses incurred by it.
2.6 It is submitted that the electricity is received and consumed by the sub-lessee directly. The applicant merely pays the amount and then recovers it from the sub-lessee. Accordingly, the reimbursement of expenses is not a supply to fall under section 7 (1) of the CGST Act, hence the electricity charges are not liable to GST.
2.7 It is submitted that the applicant is not supplying electricity but merely facilitating its availability to the lessee.
2.8 The applicant submits that he has satisfied all the conditions prescribed under Rule 33 of the GST Rules, in respect of a pure agent. Accordingly, the electricity charges collected by the applicant are reimbursement of expenses which are incurred by the sub-lessee as a pure agent of the lessee.
2.9 The applicant places reliance on Circular No. 206/18/2023- GST dated 31st October, 2023 wherein it has been clarified that where the electricity is supplied by the Real Estate Owners, Resident Welfare Associations (RWAs), Real Estate Developers etc., as a pure agent, it will not form part of value of their supply. Further, where they charge for electricity on actual basis that is, they charge the same amount for electricity from their lessees or occupants as charged by the State Electricity Boards or DISCOMs from them, they will be deemed to be acting as pure agent for this supply.
2.10 The applicant further submits that even if reimbursement of electricity charges are treated as supply under section 7 of CGST Act, the said charges collected by the applicant are not liable to GST as supply of electricity is exempted from payment of GST as per Sl. No. 104 of the Notification no. 2/2017- Central Tax Rate dated 28.06.2017.
2 .11 The applicant submits that Notification No. 2/2017 – Central Tax (Rate) dated 28.06.2017 provides the list of exempted intra state supply of goods. The relevant entries under the above referred Notification have been reproduced below:
| SI NO | Chapter, Section or Heading | Description of Goods |
| (1) | (2) | (3) |
| 104 | 2716 00 00 | Electrical Energy |
3. Submission of the Revenue
3.1 The concerned officer from the revenue has expressed his view that no GST is liable to be paid on reimbursement of electricity charges on actual basis.
4. Observations & Findings of the Authority
4.1 We have gone through the records of the issue as well as submissions made by the authorized advocates of the applicant during personal hearing. We have also considered the submission made by the officer concerned from the revenue.
4.2 The applicant has let out a warehouse space vide a deed of Sub- Lease to White Saffron Grains LLP for a period of ten years commencing from April 1, 2022 for putting up a manufacturing unit against lease rent to be payable monthly by the sub-lessee to the applicant. The contention of the applicant is that he has allowed the sub-lessee to use the premises against the payment of a monthly lease rent as consideration and along with such consideration, the sub-lessee is required to reimburse electricity charges in actual as per the meter reading. The applicant refers the concept of pure agent and submits that he satisfies all the conditions laid down in rule 33 of the GST rules to fit himself in the bracket of pure agent and therefore reimbursement of expenses of electricity charges should not be a part of value of supply.
4.3 In order to analyze the issue involved in the instant case, we find it relevant to refer the clauses of the agreement:
√ The applicant has agreed to let out demised plot for setting up a warehouse against
a monthly rent (lease rent) without any enhancement for entire lease period (as per point 3.1 of the agreement)
√ The sub lessee is entitled to apply separate water, gas and other essential connections for beneficial use and enjoyment of the lease land and utility bills related to those to be directly paid to the provider. (as per point 7.2 of the agreement)
√ Along with existing light/electrical fittings, the sub lessee shall install and maintain wiring from panel board. Any additional electrical points/fittings is allowable to fix at sub lessee‟s own cost. (as per point 7.3 of the agreement)
√ The sub lessee shall bear the actual cost of consumption of electricity and other charges levied by West Bengal Electricity Distribution Company Limited [WBSEDCL] and reimburse electricity and other charges. (as per point 7.4 of the agreement)
√ Arising event of default in making payment of any charges, including incidental expenses to provider or the applicant, the sub lessee has to indemnify the applicant. (as per point 7.5 of the agreement)
4.4 The applicant has contended that reimbursement of expenses of electricity charges should not be a part of consideration since the applicant is acting here as a pure agent.
As per para (a) of explanation of rule 33, “pure agent” is a person who “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”
4.5 In Circular No. 206/18/2023- GST dated 31st October, 2023 , it has been clarified that where the Real Estate Owners, Resident Welfare Associations (RWAs), Real Estate Developers etc., charge for electricity on actual basis that is, they charge the same amount for electricity from their lessees or occupants as charged by the State Electricity Boards or DISCOMs from them, they will be deemed to be acting as pure agent for this supply.
4.6 In the case of Prinsep Association of Apartment Owners, the applicant inter alia raised a question whether the applicant is liable to pay CGST/SGST on collection of common area electricity charges paid by the members and the same is recovered on the actual electricity charges. This authority has observed as follows:
“the applicant collects the electricity charges consumed for common area from its members on pro-rata basis. In course of hearing, the authorized representative of the applicant has furnished copy of one tax invoice in support of „Common Area Maintenance‟ issued to a member. We find that the applicant has declared a consolidated amount in the said invoice under SAC 999598 where a fixed rate is levied per square feet of the area of the flat. Tax @ 18% [Central Tax @ 9% + State Tax @ 9%] has also been charged on the entire amount. Any amount collected on account of consumption of electricity has not been shown separately in the said invoice. We are therefore of the view that electricity is being supplied bundled with supply of goods and services sourcing from a third person for the common use of its members. Thus supply of electricity forms a part of composite supply where the principal supply is the supply of common area maintenance services.”
The Appellate Authority for Advanced Ruling has confirmed the aforesaid view.
4.7 However, in the instant case, the applicant has enclosed copy of electricity bill along with invoice issued by the applicant to its sub-lessee towards „Reimbursement of power charges‟ wherefrom it appears that applicant collects the actual cost of electricity consumed by the sublessee adopting the following formula;
Formula: WBSEDCL Bill Amount / EDIM Units X Unit Consumed by WSGL (White Saffron Grains LLP) as Per Sub Meter
4.8 The fact of the case involved in the instant case is identical to the clarification given in the Circular No.206/18/2023- GST dated 31st October, 2023. We therefore hold that the applicant here will be deemed to be acting as pure agent in regard to supply of electricity to its sub-lessee and the reimbursement amount shall not be a part of his value of supply.
In view of above, we rule as under:
RULING
The applicant is not liable to pay GST on reimbursement of electricity charges on actual basis.
