Real estate owner collecting actual electricity costs from sub-lessee without markup qualifies as pure agent, exempt from GST under rule 33

AAR West Bengal ruled that applicant acting as pure agent when reimbursing electricity charges on actual basis to sub-lessee is not liable for GST. The ruling aligned with GST Circular No. 206/18/2023-GST clarifying that real estate owners charging electricity at actual cost from lessees are deemed pure agents. Since applicant collected only actual electricity costs consumed by sub-lessee without markup, reimbursement amount excluded from taxable supply value under rule 33 explanation.

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1. ISSUES PRESENTED and CONSIDERED

• Whether GST is liable to be paid on reimbursement of electricity charges collected on actual basis by a lessor from a sub-lessee under a lease agreement?
• Whether the lessor qualifies as a "pure agent" under Rule 33 of the CGST Rules, 2017, thereby excluding the reimbursement of electricity charges from the value of supply under Section 15 of the GST Act?
• Whether the supply of electricity, if treated as supply under Section 7 of the GST Act, is exempt from GST as per the relevant exemption notification?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Liability of GST on reimbursement of electricity charges collected on actual basis

- Legal Framework and Precedents: Section 15 of the CGST Act defines the value of supply as the transaction value, i.e., the price actually paid or payable for the supply of goods or services where supplier and recipient are unrelated and price is sole consideration. Rule 33 of the CGST Rules excludes expenditure or costs incurred by a supplier as a pure agent from the value of supply if conditions are met. Section 7(1) defines supply. Notification No. 2/2017-Central Tax (Rate) dated 28.06.2017 exempts supply of electrical energy from GST.

- Court's Interpretation and Reasoning: The applicant leased land and constructed factory and warehouse, sub-leased warehouse space for manufacturing, charging monthly lease rent plus reimbursement of electricity charges on actual meter reading basis. The applicant pays electricity bills in its name and recovers actual electricity cost from sub-lessee. The authority examined whether such reimbursement constitutes supply liable to GST or is excluded as pure agent reimbursement.

- Key Evidence and Findings: The lease agreement stipulates monthly lease rent and reimbursement of electricity charges based on sub-meter readings. The sub-lessee bears actual electricity consumption cost and reimburses the applicant. The applicant does not profit from electricity charges but passes on actual cost.

- Application of Law to Facts: The applicant meets conditions of Rule 33, acting as pure agent by incurring expenditure on behalf of sub-lessee with authorization, separately indicating payment in invoice, and not holding title or using electricity for own interest. Circular No. 206/18/2023-GST clarifies that real estate owners charging electricity on actual basis act as pure agents, excluding such reimbursement from value of supply.

- Treatment of Competing Arguments: The revenue officer concurs that no GST is payable on reimbursement of electricity charges on actual basis. The authority distinguishes this from cases where electricity charges are bundled with other supplies and taxed as composite supply.

- Conclusion: Reimbursement of electricity charges on actual basis by the applicant is not liable to GST as it is excluded from value of supply under Rule 33, with the applicant acting as pure agent.

Issue 2: Qualification of the applicant as a "pure agent" under Rule 33 of the CGST Rules

- Legal Framework and Precedents: Rule 33 defines "pure agent" as a person who enters into contractual agreement to act on behalf of recipient to incur expenditure, does not hold title or use goods/services for own interest, and receives only actual amount incurred. Explanation to Rule 33 elaborates conditions for pure agent status.

- Court's Interpretation and Reasoning: The applicant's contractual agreement with sub-lessee allows it to recover electricity charges paid to the electricity board, without mark-up or use for own benefit. The applicant issues invoices separately indicating reimbursement amount. The authority examined the lease agreement clauses confirming sub-lessee's responsibility for electricity charges and reimbursement terms.

- Key Evidence and Findings: The lease agreement clauses specify that sub-lessee bears actual electricity consumption cost, can apply for separate utility connections, and must indemnify applicant for default in payments. The applicant's invoices separately show reimbursement of power charges calculated by formula based on sub-meter readings.

- Application of Law to Facts: The applicant satisfies all conditions of Rule 33: contractual agreement to act as pure agent, no title or ownership of electricity supply, no use for own interest, and recovery of actual amount incurred. The Circular No. 206/18/2023-GST supports this interpretation for real estate owners.

- Treatment of Competing Arguments: The authority distinguishes this from cases where electricity is bundled with other supplies and taxed as composite supply, emphasizing the separate invoicing and actual cost recovery here.

- Conclusion: The applicant qualifies as a pure agent under Rule 33 of the CGST Rules, excluding reimbursement of electricity charges from value of supply.

Issue 3: Applicability of GST exemption on supply of electricity

- Legal Framework and Precedents: Notification No. 2/2017-Central Tax (Rate) dated 28.06.2017 exempts supply of electrical energy under tariff heading 2716 00 00 from GST.

- Court's Interpretation and Reasoning: The applicant submits that even if reimbursement of electricity charges is treated as supply under Section 7, such supply is exempt from GST under the notification.

- Key Evidence and Findings: The electricity supply is by the West Bengal Electricity Distribution Company Limited (WBSEDCL), and the applicant only facilitates payment and recovery.

- Application of Law to Facts: Since electricity supply is exempt from GST, the reimbursement amount, if treated as supply, would not attract GST liability.

- Treatment of Competing Arguments: No objection raised by revenue on this point.

- Conclusion: Supply of electricity is exempt from GST; thus, reimbursement of electricity charges is not liable to GST even if considered a supply.

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