Gst on supply of electricity

This can easily understood this concept by taking cognizance of Judicial Interpretation in Case of Harish Chand Modi (2022) 37 J.K.Jain’s GST & VR 171,

• Background of Case: The appellant had entered into a lease arrangement with its tenant (Lessee) and had leased the 6th and 7th floors of its building at premises “Shanti One,” Jodhpur-342003. Appellant is a provider of Immovable Property Rental and Leasing (SAC codes-997212). Because the appellant did not supply a separate electric metre to the lessee in this case, the lessee cannot pay electric costs directly to the electric provider. In such cases, the appellant pays the power company and collects the charges from the lessee. To make the system operate, the appellant placed sub-meters, which collect charges for the electric power consumed by the lessee based on the utilisation of electricity as determined by such sub-metre.According to the lease, the applicant charged the tenant Rent, Maintenance Charges, Interest, Security Deposit, JVVNL Electricity Charges, and DG Electricity Charges (Lessee). The appellant obtained an advance in this respect from the lessee and adjusted it in subsequent months/periods. The main question in this appeal is whether the appellant’s act of collecting power expenditures falls under the category of pure agent or not.

• Findings by ARA: The following is the findings of the ARA:
  The provisions of Rule 33 of the CGST Rules, 2017, relating to pure agents, are copied below. “33.Value of service supply in the situation of a pure agent.” Regardless of everything else in this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply will be excluded from the value of supply if all of the following requirements are met, namely,
  • When the supplier makes the payment to the third party on the recipient’s authorisation, he acts only as the recipient’s agent.
  • The payment made on behalf of the recipient of supply by the pure agent has been separately specified in the invoice provided by the pure agent to the recipient of service; and
  • The supplies purchased by the pure agent from a third party as the recipient’s pure agent are in addition to the services he provides on his own behalf.

Explanation.-For the purposes of this regulation, a “pure agent” is defined as a person who-

• Enters into a contractual arrangement with the recipient of supply to serve as his exclusive agent in incurring expenditure or costs in the process of providing products, services, or both;
• Neither seeks to hold nor holds any claim to the goods or services acquired or delivered as the recipient’s sole agent;
• Does not utilise the products or services obtained for his personal benefit; and
• Gets only the real cost of procuring such products or services, in addition to the amount paid for supplies provided on his own account.”

AAR has noted that there is no unambiguous authorisation granted by the lessee in the current case, 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 does not become an authorization since the phrase “reimbursement” is not stated anywhere in the agreement. Furthermore, the applicant (lessor) does not enter into a contractual arrangement with the recipient (lessee) of the supply to serve just as an agent to incur expenditure or costs in the course of providing services. As a result, the act of acting as a “pure agent” has not been defined.

• ARA’s Analysis: Thus, reimbursement of electrical expenditures had not been paid on an actual basis, as it had been collected in advance with rent and further modified by the lessor by raising the invoice/bill/memo/document. As a result, in this scenario, the so-called reimbursement of power expenditures would be taxed under clause (c) Section 15(2) of the CGST Act, 2017.After reviewing the agreement provided with the appeal memo, AAAR discovered that Clauses 8(g) and (h) are linked to electricity expenditures. According to these terms, only lessee is obligated to pay appellant’s electric expenses. Because there is no authorisation from the lessee to which third party electric expenditures shall be payable, condition No. I of the CGST Rules, 2017 is not met.Furthermore, based on the facts of the case, AAAR agreed with the AAR, Rajasthan’s observation that reimbursement of electricity expenses had not been made on an actual basis by the lessee to the lessor because it had been collected in advance with rent and further adjusted by the lessor by raising the invoice/bill/memo/document. Furthermore, the appellant has failed to demonstrate that they are a pure agent. As a result, in this scenario, the so-called reimbursement of power expenditures would be taxable under Section 15(2) (c) of the CGST Act, 2017.
• ARA’s Conclusion and Decision: As a result, AAAR determined that appellant is not acting as a pure agent. The appellant has emphasised the ruling issued by the Gujarat Authority for Advance Ruling in the case of Gujarat Narmada Valley Fertilizers & Chemicals Ltd. In this regard, we believe that these orders were not issued by a higher court than the current one, and so they are not being regarded.
• Held: “The repayment of electrical expenditures by the lessee to the lessor had not been paid on an actual basis, as it had been collected in advance with rent and further modified by the lessor by raising the invoice/bill/memo document.” As a result, the appellant is not acting as a pure agent, and the criteria of Rule 33(i) of the GST Rules is not met. The applicant’s (Lessor’s) primary supply of services is “renting/leasing of immovable property,” which attracts GST at 18% under SAC code 997212. The Lessor’s collection of energy and other expenditures for consideration is in regard to the composite delivery of the primary service of’renting of immovable property,’ and would form part of the taxable value under Section 15(2) (c), CGST Act, 2017.”