Electricity Charge by Community Hall/Banquet Hall

[Guest]

A Community hall/Banquet Hall/Samaj Bhawan if collects actual electricity charges specifically by taking the meter reading along with some mark up from the person who takes it on rent and shows it separtely in the invoice as electricity charge. Is service tax to be paid on the same?

Will it be termed as sale of electricity?

[Ganeshan Kalyani]

Sir, You have mentioned that ''if collects actual electricity charges'', this clarifies that there is no service charges added by you from the persons who take the hall on rent. Hence this cannot become service, this is pure reimbursement. No service tax. Thanks.

[Guest]

Sir there is a mark up involved say ₹ 1 per unit to meet incidental expense for electricity maintenance.

Again even though, if there is no mark up I have a doubt that can a hall provide its service without electricity, even though they may be collecting it seperately.

Can it be termed as sale of electricity by hall to the person who takes it on rent?

[Rajagopalan Ranganathan]

Sir,

According to Section 67 (1) (i) of Finance Act, 1994 service tax chargeable on any taxable service with reference to its value shall, in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him. Therefore if the bill issued by the service provider includes the electricity charges collected from you in the total amount charged by the service provider then you have to pay service tax on total amount indicated in the bill. But your service provider may collect the electricity charges in actual for onward deposit with the electricity department. In this case it need not be included in the total amount charged by the service provider. Electricity charges should be collected separately.

[Guest]

Thank you sir.

AI Summary

Service tax treatment of separately billed electricity charges depends on whether they are genuine reimbursement or part of gross consideration. Separate, actual electricity recoveries that are collected only as reimbursement and passed on to the electricity supplier need not be included in the taxable consideration; but where electricity charges are included in the bill or are marked up so as to form part of the gross amount charged for the service, the entire billed amount (including the electricity component) must be treated as the taxable value.