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TMI Blog2022 (10) TMI 775X X X X Extracts X X X X X X X X Extracts X X X X ..... ivate Limited ("Applicant/Lessor") is engaged in the business of running hotels. The Lessor is the owner of 'Holiday Inn - Express & Suits Hyderabad' ("the Hotel"). The hotel is managed by the Intercontinental Hotel Group, having its principal place of business in Gurgaon. India. M/s. The Curry House Food's Private Limited ("Lessee") is engaged in the business of operation of restaurants. 2. A Leave and License Agreement ("Agreement") has been entered between the lessor and lessee. As per the terms of the agreement, the lessor has granted licence to the lessee to use the specified area ("Licensed Premises") of the hotel for operating a restaurant by the lessee. For this purpose, lessee has agreed to pay monthly licence fee as a consideration to the lessor. 3. In addition to the license fees, the lessor is also collecting other charges from the lessee towards common charges for security, cleaning of facade and common areas i.e., entrance, etc. as per the agreement. These charges are being collected from the lessee, in the ratio of the area of licensed premises to the total area. 4. Further, the lessor is collecting electricity and water charges as per the actual meter reading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority for Advance Ruling, Telangana. ISSUES REQUIRING ADVANCE RULING: 10. The applicant submits the following questions for Advance Ruling and their interpretation on the questions as under: 1. Whether GST is applicable on electricity and water charges which are being collected at actual by the Lessor from the Lessee? 2. If answer to Q.No.1 is yes, then what is the nature of supply and applicable rate of GST? Applicant's understanding: 11. The Lessor believes that the supply of electricity and water is part of the rental services and thus should attract GST as rental services. However, the lessee does not agree and contends that collection of electricity and water charges at actuals from them is in the nature of reimbursement of expenses and not covered under the definition of supply under Section 7 of the CGST Act. The said electricity and water charges are being paid by the lessor on behalf of the lessee in respect of the licensed premises. Thus, collection of electricity and water charges at actuals from them is nothing but a repayment of the expenses by the lessee to the lessor. Accordingly, it is not a supply and hence, not liable to GST 12. Further, the lesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 States) 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) ............. (e)............. ("Emphasis supplied") 19. Rule 33 of the CGST Rules, 2017: Value of supply of services in case of pure agent. - Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to pay the electricity and water charges as per the actual meter readings. The relevant extract of the said clause is reproduced below for ready reference. "Electricity, Air-conditioning and water charges will be borne by the licensee as per the actual meter readings and rates for the licensed premises (sub Meters/ dual source energy meters to be installed by the licensor for the licensee). Power backup charges to be paid by licensee as per actual." 24. The lessee states that, in present case, the agreement entered by the lessor is towards supply of service i.e. renting of licensed premises to the lessee for operating the restaurant. The lessor being the owner of the licensed premises receives the electricity and water bills in its name and pays the same to the concerned authorities. 25. Subsequently, the lessor determines the electricity and water charges attributable to the licensed premises as per the sub-meter readings and collects the same from the lessee as reimbursement of expenses incurred by it. 26. Thus, the electricity and water are received and consumed by the lessee directly. Lessor merely pays the amount and then recovers it from lessee. Accordingly, the rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and water charges at actuals. ii. The supplier 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. The lessor being the supplier of immovable property service does not hold any title or ownership in respect of the electricity and water consumed by the lessee. iii. The supplier does not use for his own interest such goods or services so procured. The electricity and water being used by the lessee for running the restaurant which are not used by the lessor. iv. The supplier 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. The lessor is collecting the electricity and water charges at actuals which are paid to the concerned authorities. The said charges are in addition to the monthly license fee paid by the lessee in respect of renting of immovable property service. v. 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. The lessor is collecting the electricity and water charges at ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to service tax. * ICC Realty (India) Pvt. Ltd. Vs. CCE., Pune * M/s. Hotel Lake View Ashok Vs. CGST CE and CC, Bhopal Supply of electricity and water are exempted from payment of GST: 37. Lessee also states that even if the reimbursement of electricity and water charges are treated as supply under Section 7 of the CGST Act, the said charges collected by the lessor are not liable to GST as supply of water and electricity are exempted from payment of GST as per Sl. No. 99 and 104 of the Notification No. 2/2017-Central Tax Rate dated 28.06.2017 respectively. III. Personal Hearing: The Authorized representatives of the unit namely Sri G. Jagannath, Advocate and V. Ranadeep, CA attended the personal hearing held on 10.03.2022. The authorized representatives reiterated their averments in the application submitted and requested to dispose their application on merits at the earliest. IV. The opinion expressed by Sri S.V. Kasi Visweswara Rao, Additional Commissioner (State Tax), on the issues raised by the applicant. Notification No. 02/2017 dated: 28.06.2017 provides for exemption from tax under CGST Act, 2017 on water (other than aerated, mineral, purified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide the applicability of GST on these utility charges, it is relevant to refer to the definition of 'composite supply' which is specified under Sec. 2(30) of the CGST Act, 2017 as under: "Sec. 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". Further, the concept of composite supply has been expounded by the Central Board of Indirect Taxes and Customs in its Flyer Issued in r/o "Composite Supply and Mixed Supply" as under: "Under GST, a composite supply would mean 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. The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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