Lessor charging electricity and water costs to lessee referred to Appellate Authority under Section 98(5) for GST determination

The AAR-Telangana could not reach a unanimous decision regarding GST applicability on electricity and water charges collected at actual cost by a lessor from lessee. Due to differing opinions between Central Tax and State Tax members on the nature of supply and GST rate for these charges, the application was referred to the Appellate Authority for Advance Ruling under Section 98(5) of CGST/TGST Act, 2017 for final determination.

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Issues Involved:
1. Whether GST is applicable on electricity and water charges collected at actuals by the lessor from the lessee.
2. If GST is applicable, what is the nature of supply and the applicable rate of GST.

Issue-Wise Detailed Analysis:

1. Applicability of GST on Electricity and Water Charges:

The applicant, M/s. Duet India Hotels (Hyderabad) Private Limited, sought an advance ruling to determine if GST is applicable on electricity and water charges collected at actuals from the lessee, M/s. The Curry House Food's Private Limited. The applicant argued that these charges are reimbursements and should not attract GST. They contended that the lessor acts as a pure agent for the lessee, paying the utility bills on their behalf and then recovering the costs. The applicant cited Section 7(1)(a) of the CGST Act, which defines 'supply' and argued that the reimbursement of utility charges does not qualify as a supply. Furthermore, they referred to Rule 33 of the CGST Rules, which allows exclusion of pure agent expenses from the value of supply.

2. Nature of Supply and Applicable Rate of GST:

The applicant's interpretation was that even if the utility charges are considered a supply, they should be exempt under Notification No. 2/2017-Central Tax (Rate) dated 28.06.2017, which exempts water (other than specific types) and electrical energy from GST. They argued that the utility charges should not be included in the value of the renting of immovable property service as per Section 15(2)(c) of the CGST Act.

Judgments Delivered:

Opinion by Sri S.V. Kasi Visweswara Rao:

Sri S.V. Kasi Visweswara Rao concluded that electricity and water charges collected at actuals are exempt from GST. He referred to Notification No. 02/2017, which exempts water and electrical energy from GST. Therefore, he ruled that GST is not applicable on these charges, and the second question regarding the nature of supply and applicable rate of GST does not arise.

Opinion by Sri B. Raghu Kiran:

Sri B. Raghu Kiran opined differently, stating that the applicant does not qualify as a 'pure agent' due to the lack of details about the third party or authorization by the recipient. He referred to the definition of 'composite supply' under Section 2(30) of the CGST Act, noting that the supply of leasing services is the main supply, and the provision of utilities is incidental. He concluded that the utility charges are part of a composite supply and should attract GST at the rate applicable to leasing services.

Referral to Appellate Authority:

Due to the differing opinions of the members, the application was referred to the Appellate Authority for Advance Ruling for the state of Telangana under Section 98(5) of the CGST/TGST Act, 2017, for a final decision on the applicability of GST on electricity and water charges collected at actuals by the lessor from the lessee.

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