c

ARA, Rajasthan has pronounced judgment on 15.9.2021, in the case of Harish Chand Modi  (2021) 36 J. K. Jain’s GST & VR 500, that;

‘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 applicant 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. Applicant is supplier of Renting & Leasing of Immovable Property (SAC codes-997212). The applicant 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 applicant makes the payment to the electric company and in-turn collects such charges from the lessee. To make the system work, the applicant 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.

2. 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 applicant received advance in this regard from the lessee and made adjustment thereof in upcoming months/periods.

‘Renting-Leasing of immovable property’─Reimbursement of electricity expenses are Part of Taxable Value

3. Findings & Analysis by ARA. ─In view of above legal provisions and fact of the case, the ARA we observe that Principal supply of services by the lessor is “renting of immovable property” Electricity charges or incidental charges, maintenance charges are in relation to composite supply of principal service of renting of immovable property, any incidental charges or expenses in respect of supply of service shall form part of value of taxable supply in terms of clear provisions of S.15, CGST Act, 2017. We find that the electricity expenses/charges related clause is mentioned in para 8(g) of the agreement. It reads that, this is a prepaid meter, hence a computer generated invoice will be provided by the lessor to the Lessee as per actual unit cost with the other electrical related expenses and taxes. From this it is clear that the payment regarding the electricity expenses is collected by the Lessor by issuing invoice for the same. Hence, there is a established fact that supply of service has been made to the lessee for consideration by issuing invoice(s).

4. The facts submitted by the applicant (here Lessor) also state that the Lessor is also providing Services of DG set on Fixed rate of Rs.10000/- p.m. and Rs.18/- per unit for each unit consumed. This service is also an ancillary service of principal supply of services ‘renting of immovable property’ (SAC Codes-997212) and covers 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’ as per S.15(2)(c), CGST Act, 2017.

5. As far as expression “Pure Agent” is concerned, in the instant case there is no clear authorisation 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. The rent agreement itself not become an authorisation 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 services. Hence, the act of working as an ‘pure agent’ has not been phrased out. Thus, 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.

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.

6. Conclusion & Ruling by ARA.─The ARA Ruled as under;

Q.(a) Whether reimbursement of electricity expenses, on actual basis, by the lessee to lessor would form part of taxable value?

Ans: Yes. In the instant case, reimbursement of electricity expenses, on by the lessee to lessor would form part of taxable value as it is not on actual basis.

(b) If the answer to above is no, whether GST is levied on the reimbursement of expenses from the lessee by the lessor at actuals?

Ans: GST is levied on reimbursement of expenses in the instant case.

(c) If answer to the above is yes, what is the rate of GST applicable to said reimbursement of expenses?

Ans: Since the principal supply provided by the applicant (here Lessor) is of Renting & Leasing of Immovable Property (SAC code- 997212), it will attract GST @18% of the taxable value of supply.

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