Electricity expense reimbursement by lessee to lessor forms part of taxable value under Section 15 CGST Act

AAR Rajasthan ruled that reimbursement of electricity expenses by lessee to lessor forms part of taxable value under Section 15 of CGST Act, 2017. The electricity charges constitute incidental charges relating to composite supply of principal service of renting immovable property. Lessor did not qualify as pure agent as no clear authorization existed and expenses were collected in advance with rent through invoices. The reimbursement attracts GST at 18% rate applicable to renting/leasing of immovable property services.

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Issues Involved:
1. Whether reimbursement of electricity expenses, on actual basis, by the lessee to lessor would form part of taxable value.
2. Whether GST is levied on the reimbursement of expenses from the lessee by the lessor at actuals.
3. What is the rate of GST applicable to said reimbursement of expenses.

Issue-Wise Detailed Analysis:

1. Reimbursement of Electricity Expenses as Part of Taxable Value:
The applicant, a registered assessee under GST laws, entered into a rent agreement to lease parts of its building and sought clarity on whether the reimbursement of electricity expenses from the lessee would form part of the taxable value. The applicant argued that these reimbursements should not be taxed as they are purely on actual basis and the applicant acted as a "pure agent" under Rule 33 of the CGST Rules, 2017.

However, the authority observed that the principal supply by the lessor is "renting of immovable property," and any incidental charges, including electricity expenses, are in relation to this composite supply. The rent agreement indicated that the lessor would issue invoices for all services, including electricity expenses, which implies that these charges are not merely reimbursements but part of the taxable supply.

2. GST on Reimbursement of Expenses:
Given that the electricity charges are part of the composite supply of renting immovable property, the authority concluded that GST is applicable on these reimbursements. The applicant did not meet the criteria of a "pure agent" as defined under Rule 33, since there was no clear authorization from the lessee, and the term "reimbursement" was not explicitly mentioned in the agreement. The lessor's collection of electricity charges in advance and subsequent adjustment further indicated that these are not pure reimbursements.

3. Rate of GST Applicable:
Since the principal supply is renting and leasing of immovable property, the applicable GST rate is 18% (9% CGST and 9% SGST). This rate applies to the entire value of the composite supply, including any incidental charges such as electricity expenses.

Conclusion:
The authority ruled that the reimbursement of electricity expenses by the lessee to the lessor forms part of the taxable value and is subject to GST. The applicable GST rate for these reimbursements, as part of the composite supply of renting immovable property, is 18%.

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