TMI Blog2021 (12) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... the Licensee, is for effective enjoyment of the rented premises without which the occupation of the premises could not be possible. Thus, the provision of essential services is mandatory on landlord and it is not mere facilitating the payment of electricity charges by the licensor. The value of supply includes incidental expenses charged by the supplier in respect to renting of premises for the purpose of levy of tax except for subsidies provided by the Government and the value of discount. Therefore, the charges for electricity and water charges recovered as reimbursements, even if at actuals, have the nature of incidental expenses in relation to renting of immovable property and are includible in the value of supply and are to be considered as transaction value for the purpose of levy of tax - The concept of a pure agent under GST Laws is covered under the provisions of Rule 33 of CGST Rules, 2017 and as per the said Rule 33, the expenditure or cost incurred by a supplier, as a pure agent of the recipient of the supply shall be excluded from the value of supply. However, such exclusion of expenditure incurred as a pure agent is possible only where certain conditions as menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursement basis are liable to GST? b) In the above scenario, whether the Appellant acts as a Pure Agent? c) Is the Applicant liable to add value of Electricity and Water charges to the monthly License Fee if as per terms of the contract tenant user is paying for such utility services directly to the Service Provider i.e. Electricity Power Distributor/BMC, as the ease may be, even though Electric and Water meters continue to remain in the name of the Applicant? At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression GST Act' would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - (AS PER THE APPLICANT): The submissions made by, M/s. Indiana Engineering Works (Bombay) P. Ltd., the Applicant, are as under- 2.1 Applicant, situated at Indiana House, off. M. Vasanji Road, Marol Naka, Andheri ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges mentioned in sub serial (2) shall be included However, in the instant case the electricity and water charges paid by the Applicant and reimbursed by the Licensees at actuals appear to be out of the purview of GST as the Applicant is of the view that these charges and expenses are not includable in the value of supply as per the provisions of the said Section of the CGST Act. 2.8 It is undisputed fact that where the Licensee has a separate meter from the Distributor of Electricity but pays the bill amount at actual to the Licensor who effects payment to the Distributor of electricity, then it amounts that the charges are collected by the Licensor in the capacity of a Pure Agent, as defined under Rule 33 of the CGST Rules, 2017 and hence such charges would not attract GST. B. APPLICANT'S INTERPRE T4 TION OF LAW (APPLICANT'S INTERPRETATION) 2.9 Applicant has leased 4th floor of the building, Indiana House , as per Leave and License Agreement dated 126 June, 2017 entered into with the Licensee, where the Licensor is charging monthly License fee with Service Tax, as more specifically agreed therein. Accordingly, the Licensor periodically discharges the Tax p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges by the Appellant and subsequently taking the reimbursement of the same will not form part and parcel of gross value of service of renting of immovable property. The issue no longer res integra as the same has been decided time and again in the following decisions: ICC Reality (India) Pvt. Ltd vs. CCE, Pune - 2013 (32) STR 427 (Tri. Mumbai)] 2.16 The Leave and License agreements between the Licensor and the Licensees have been registered with the proper authority. The Licensor is in the possession of the Electricity and Water Meters installed by the appropriate authorities who distribute electricity and also provide water in Applicant's name. The Licensor acts as Pure Agent and issues Debit Note for electricity charges and bill of supply for reimbursement of water charges without any value addition. 2.17 The Applicant refers to Condition No.6 of the Agreement wherein it is stated that the monthly License Fee will be paid by the Licensees before the 7th of every month in advance and the electricity charges, monthly water charges, as per actuals on producing the bills, which shall be paid to the Licensor before the due date of the bills, for availing rebates, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the said Section 15, the value of supply includes all amounts that pertain to specific supply for the purpose of levy of tax except, subsidies provided by the Government and the value of discount. Therefore, the amount of electricity and water charges are in the nature of incidental expenses while supplying main service of renting of immovable property. Accordingly, the electricity charges and water charges recovered as reimbursements, even if at actual, would get covered as incidental expenses towards the value consideration in connection with supply of renting of immovable services of commercial property which is the main supply. 3.6 Further, as precondition (i) of Rule 33 of the CGST / SGST Rules, 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 the recipient. In the present case, the Applicant/ Licensor, is the supplier. Contractual agreement is between the applicant and the recipient of service for renting of immovable property; that there is incidental supply of electricity and water from the Licensor to the Licensee. The aforesaid electricity and water charges, though are recovered fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts towards rent, based on time periods, from the commencement date. The Licensee shall have to pay monthly license fee of ₹ 2,52,000/- per month, i.e. ₹ 63/- per square feet for the use and occupation of the licensed premises. In addition to the giving of the immovable property on lease, the applicant is also providing utilities, such as electricity, water and internal maintenance in respect of the licensed premises. The charges related to electricity/water is recovered from the lessee based on the reading shown in the electricity/water meters provided by the applicant. The Applicant is of the view that reimbursement of water charges, electricity charges, is nothing but repayment of certain expenses incurred by the applicant on behalf of the Licensee and they do not have character of supply as defined under the GST Act. Alternatively, applicant is of the view that the reimbursement of expenses received by them from the lessees can qualify towards expenses incurred as a 'Pure Agent' and would not be considered in the value of supply for the levy of tax. 5.3 In order to ascertain the true nature of transaction we feel it necessary to refer to certain clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement in relation to the grant of the Licensed Premises on leave and license basis. (3) The LICENSOR shall during the subsistence of this Agreement at its costs, charges and expenses in all respect provide and make available to the LICENSEE the Licensed Premises including but not limited to the following facilities: - a. To allow the LICENSEE, its group companies, associate companies, subsidiaries and/ or joint venture companies to exclusively occupy and use the said Licensed Premises on the 4th Floor of the building known as Indian House A Wing, left side . b. Use of all facilities as annexed hereto as Annexure A of this Agreement and provided by the LICENSOR in the Licensed premises. c. Use of furniture fixtures, interior decoration, etc. as indicated in Layout plan and annexed hereto as Annexure A . d. Availability of lifts for going up and down to and from the Licensed Premises. e. Permit the LICENSEE to install their own telephone lines if required, 24 hours of electricity, water supply, and security guards for the main gate. f. Two Toilets block (One for gents and one for ladies) in the licensed premises; as per layout plan which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment 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; 5.7 The applicant is receiving monthly license fee of ₹ 2,52,000/- per month i.e ₹ 63/- per square feet for the use and occupation of the licensed premises; whereas the charges for electricity are recovered from lessees, based on the reading shown in the sub-meter provided by the applicant. The water meter is also installed in the name of the Licensor who pays the water bill and apportions water charges to the Licensee as per floor space occupied. 5.8 As the renting of immovable property is effected within the state of Maharashtra, we may refer to the provisions of the Maharashtra Rent Control Act, 1999 specially, Explanation to section 29 which mentions that - essential supply or service includes supply of water, electricity, lights in passages and on staircases, lifts and conservancy or sanitary service . It is also mentioned that no landlord, either himself or through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action 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) The value of supply shall include (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to Stales) Act, if charged separately by the supplier; (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both; (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; (d) interest or late fee or penalty for delayed payment of any consideration for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho- (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 any 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 to the amount received for supply he provides on his own account. 5.18 Therefore, a pure agent is one who, while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (at actuals, without adding it to the value of his own supply) for such supplies, from the recipient of the main supply. While the relationship between the provider of service and recipient of service, in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services may be that of a pure agent. Here clauses (a) to (c) mentioned above are importa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efined under the CGST Rules and, therefore, the expenditure or cost incurred by the applicant and subsequent reimbursement thereof cannot be excluded from the value of supply. 5.22 Therefore, from the facts mentioned above and the provisions discussed supra, reimbursed electricity and water charges charged to the licensee by issuing debit note or paid by the licensee is considered monthly License fee and total value along with fixed monthly rent is to be considered as transaction value of rent for the purpose levy of tax under GST Act. 5.23 Attention is also invited to the ruling by Maharashtra AAR in the case of E-Square Leisure Pvt. Ltd. vide its Order No. GST-ARA-71/2018-19/B-171 dated December 29, 2018 . In this case also it was held that renting of immovable property would be the main supply and the provision of other utilities such as electricity, and water supply, fuel etc. would be in the nature of ancillary supply which help in better enjoyment of the main supply. Therefore, the utility charges in the nature of electricity charges and water reimbursed to the applicant by the lessee forms a part of value of supply. For the purpose of present ruling, we have analyze ..... X X X X Extracts X X X X X X X X Extracts X X X X
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