Pure agent benefit is denied if conditions of pure agent are not fulfilled

Authority for Advance Ruling, Maharashtra to the application made by   IN RE: E-SQUARE LEISURE PVT. LTD.  [ 2019 (4) TMI 421 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA ]. has replied that the conditions as laid down for pure agent in the GST provision is not fulfilled and hence the reimbursement would be treated as consideration and GST is applicable. It is a composite supply and the rate of principal supply is applicable.

The applicant has agreed to leased out the Theatre which is an immovable property to lease to conduct and operate the Theatre for rent.  We strongly feel that Theatre business will not be organic unless it is accompanied with supply of power and water. The utilities such as electricity, supply and water supply are basic amenities subject to which competent authority will not issue’ No objection Certificate’ to conduct business of running a Theatre. As such applicant is providing more than two services such as renting of immovable property, supply of power through DG set and water through RO besides cooking fuel. 

Held that:- The renting of immovable property would be the main supply and 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 that is Theatre. Principal supply or main supply basically signifies the supply of goods or services that is formed as a substantial constituent of a composite supply and any other supply being ancillary - the utility charges in the nature of electricity charges and water reimbursed by the applicant from lessee forms part of composite supply. 

The applicant has failed to establish themselves as a pure agent as defined under the GST Valuation Rules and therefore the expenditure or cost incurred by the applicant and subsequent reimbursement thereof cannot be excluded from the value of supply. 

For reasons as discussed in the body of the order, the questions are answered thus - 

Question: Whether GST is levied on the reimbursement of the expenses from the leesse by the lessor at actuals?

Answer: The answer is in affirmative.

Question: In case GST is levied, what is the rate of GST applicable to said reimbursement of expenses?

Answer: As the reimbursement of the expenses constitutes composite supply GST would be payable at a rate as applicable to the principal supply.

IN RE: E-SQUARE LEISURE PVT. LTD.  [ 2019 (4) TMI 421 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA ].