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2019 (4) TMI 421
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....cifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the "GST Act". 02. FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- 3.1 STATEMENT OF THE RELEVANT FACT SHAVING A BEARING ON THE QUESTION(S) ON WHICH THE ADVANCE RULING IS REQUIRED • The application is being filed by 'E-SQUARE LEISURE PRIVATE LIMITED' (hereinafter referred as 'E-square' or 'Applicant' or 'the Company'); having GSTIN 27AAACG5176C1ZT and is engaged in the business of exhibition and business services, accommodation in hotels, inn, guest house, club or camp site, etc services, and restaurant services; submits that, • The Company intends to enter in to a contractual agreement of renting of immovable property with the lessee for leasing of the immovable property for rent. Apart from rent, E-Square also plans to collect expenses of electricity, water charges, proper....
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.... • GST is levied on Supply as defined under Section 7 of the CGST Act. Supply includes: a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; b)... c)... d)... • We submit that, to qualify a certain transaction as supply the condition given below are required to be satisfied A. Supply includes all forms such as sale, transfer, barter etc. Of goods and service. B. Said transaction shall be made or agreed to be made for a consideration C. Two or more person shall be involved (By one person to another) D. in the course or furtherance of business • Hence, it is essential to analyse whether all the conditions as above are satisfied in case of reimbursement of expenses • Reimbursement is nothing but to repay for certain expenses incurred by the person on behalf of other. e.g. in case of electricity the supply of transmission is from the State Electricity Board hence it could be construed that Lessor has not suppl....
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....iled Revenue is dismissed 4 Sercon India Pvt. Ltd. [2013 (30) S.T.R. 454 (Del.)] = 2013 (3) TMI 449 - DELHI HIGH COURT Having examined the matter at some length, we find that, prima facie, the issue of levying and charging service tax on reimbursable expenditure has been settled by the decision of this Court in Intercontinental Consultants and Technocrats Pvt, Ltd (2012 (12) TMI 150 - DELHI HIGH COURT). Therefore, prima facie, the amount of 14.22 crores, which has been actually received by the petitioner from its clients towards reimbursement of expenses, could not be the subject matter of service tax. • Also, we submit that, what the Lessor recovers from the Lessee by way of reimbursement of water charges, electricity charges, taxes etc, do not have the character of revenue or value addition in the hands of the Lessor. • Also, it is important to note that water, electricity charge, taxes etc. has a co-relation with exact quantity of water or electricity consumed, hence, it is variable on the basis of usage whereas component of rent is always fixed by way of contractual agreement. (for example, rate of water tax/charge levied for hospitals differs....
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....hold any title to the goods or services so procured or supplied as pure agent of the recipient of supply • What constitutes as a title in goods is not defined GST law. In the ordinary parlance, title means the ownership. • it is important to note that, electricity or other connections are generally registered in the name of the owner, At the time of renting, right to use electricity is implied right given to the lessee. Hence, the question under consideration is whether implied right or possession constitute title in goods or service or both. • In the law of property, title in its broadest sense refers to all rights that can be secured and enjoyed under the law. It is frequently synonymous with absolute ownership. However, the term does not necessarily imply absolute ownership, however; it can also mean mere possession or the right thereof. • Given this, it could be construed that, even the invoice is in the name of lessor it constitutes as lessee hold the possession of the Goods. (Like Electricity bill is in the name of lessor however used by the lessee hence it could be construed that lessee hold or enjoy the title in goods). ....
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....pure agent? If reimbursement of expenses qualifies as supply as defined under section 7 of the CGST Act what is the rate of GST applicable? • Another school of thought is that reimbursement of expenses by the lessor from the lessee forms the part of consideration received towards rented property. • Given this, it is important to analyse the other conditions of the supply No. Conditions Remark 1 Transaction is made or agreed to be made for a consideration Consideration is defined under Section 2(31) of the CGST Act, includes the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or any other person. 2 Two or more person shall be involved in case of transaction under consideration two persons are involved (i.e. lessor and lessee) 3 in the course or furtherance of business As per Section 2(17) of the CGST Act, business includes any activity or transaction in connection with or incidental or ancilla of the trade • As discussed in the aforesaid paras, the definition of supply is inclusive and inclu....
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....REME COURT OF INDIA held that electricity, though an intangible object is 'goods' covered by Entry 54 of List Il of Schedule VII to the Constitution of India 3 M/s. ICC Reality (India) Pvt Ltd. (2013-TIOL-1751-CESTAT-MUM) =2013 (12) TMI 854 - CESTAT MUMBAI We find that as per the provisions of Maharashtra Value Added Tax Act, 2002, electricity is also covered under Schedule. A sr.no.20 and charged to Nil rate of tax. In view of this, we find the electricity is goods chargeable to duty under Central Excise Tariff as well as under the Maharashtra Value Added Tax Act, 2002. Therefore, the supply of electricity to tenant amounts to sale of goods and not supply of service. Further the Notification No. 12/03 ST dated 20/6/2003 exempt from service tax, any value of goods supplied by service provider to service recipient. • Hence, it could be construed that electricity is separate independent supply and does not constitute the part of renting contract. • Further, the category, electricity has been kept aside under the purview of GST at present. • Further, it is to be noted that, electricity is an "exempt supply" covered under HSN 2716 00 0....
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....resaid, it could be constructed that, the GST rate applicable to reimbursement of expenses is the rate as applicable to principle supply • However, said rate is applicable subject to the condition that service provided is naturally bundled to each other hence it could be construed that only the expenses which are naturally bundled are liable for, GST at a rate applicable to Principle Supply. • Hence reimbursement towards the expenses which are capable of differential treatment and can be provided separately like cooking fuel could not be covered under Composite supply. • Hence, clarity is required whether the rate of GST applicable in case of reimbursement of expenses at actual. PRAYER • In view of the submissions made above, it is most humbly prayed that Hon'ble authorities may kindly pass advance ruling to clarify: - Whether GST is levied on the reimbursement of expenses from the lessee by the lessor at actual? - In case GST is levied what is the rate of GST applicable to said reimbursement of expenses. Additional submissions made by the applicant - 3.3 ADDITIONAL SUBMISSION TO BE CONSIDERED WITH RESPE....
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....nters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply: (c) does not use for his own interest such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account (4) Given the aforesaid pure agent is a person who supplies something in addition to the services he supplies. (5) Further as per FAQ issued by the CBEC, A pure agent is one who while making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply. (6) Hence, the relationship between provider of service and recipient of service in respect of the main service is on a principal to principal basis, the relations....
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....e of lifts, motor pumps for water supply, lights in common area, etc., since there is no agent involved in these transactions, the exclusion from the value of taxable service would not be available. (9) Further, electricity charges are not liable to Service Tax has been upheld in numerous earlier judgments [refer ICC Reality (India) Pvt. Ltd v. CCE (2013) 32 STR 427 (Tri-Mum) = 2013 (12) TMI 854 - CESTAT MUMBAI, EON Hinjewadi infra. Pvt. Ltd (2012 TIOL-1688-CESTAT-Mum)] = 2012 (11) TMI 979 - CESTAT MUMBAI. (10) Further, it is pertinent to note that Entry no. 53 i.e. 'Taxes on the consumption or sale of electricity' is continued even after the Constitution of India was amended [vide Constitution (One Hundred and First Amendment) Act, 2016. Effectively, this means that electricity remain a subject matter of State and cannot be subject to GST. (11) In the instant scenario, the facts can be summarised as under: Sr.No. Parties to contract Underlying in transaction Type of supply 1 Renting of property Renting Main Supply 2 Supply of electricity Supply of Electricity to lessee on behalf of electricity board Supply of goods/services in respect o....
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....urate reading of consumption of water and electricity. 3.5 ADDITIONAL SUBMISSION TO BE CONSIDERED WITH RESPECT TO PURE AGENT • We refer the application filed by E-Square Leisure Pvt Ltd ('The Company") dated 23^rd August 2018 where in the Company intends to seek below clarification - Whether GST is levied on the reimbursement of expenses from the lessee by the lessor at actuals? - In case GST is levied what is the rate of GST applicable to said reimbursement of expenses? • With regards to same the GST authority has asked to submit the detailed note on conditions specified in the rule with respect to pure agent. • In this regard, we request to consider following submissions OUR SUBMISSIONS • We hereby submit that, there is Contractual Agreement with the Lessee and lessor. • Rule 33 of Determination of Value prescribes the condition to qualify certain expenses as a Pure agent. The table given below depict the condition along with detailed analysis thereof No. Conditions Remarks 1. The contractual agreement by the supplier with the recipient to act as his pure agent to incur expendi....
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....uld be construed that, E-Square Leisure Pvt. Ltd. makes the payment of electricity charges on behalf of Carnival Films Pvt. Ltd. It is to be noted that invoice is yet to be raised on Lessee. 6. the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service Invoice is yet to be raised on Lessee. 7. the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account The contractual agreement is entered in between lessee and lessor for renting Of property and not providing electricity. There are two supplies, i.e. one of renting of property and another or providing electricity. Thus charges for electricity are in addition to the renting of service provided. • Accordingly, we submit that the condition as specified in Rule 33 of Determination of Value of Supply with respect to contractual agreement is satisfied. 3.6 ADDITIONAL SUBMISSION TO BE CONSIDERED WITH RESPECT TO PURE AGENT • We refer the application filed by E-Square Leisure....
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....ergy and water consumption of building, (ii) to integrate all third party systems to ensure more visibility on energy data and water consumption through energy meter integration and, (iii) to help to measure accurate reading of consumption of water and electricity. As per para 8 (i) of contractual agreement, about utility charges, electricity charges (including running cost of DG and HVAC) for electricity consumed in theatre and for the signage of the lessee installed at the complex/ facade of the complex shall be reimbursed by the lessee based on the reading shown in the sub-meter/ BTU provided by the lessor at the theatre, at such rate (which shall be arrived at by dividing the total electricity bill by the number of units measured excluding any late payment charges) as may be charged by electricity power supply company. And, As per para 8 (ii), charges for potable water and RO treated water shall be metered separately and charged at actual cost. And, As per para 9 (i), Property tax shall be borne and paid solely by the lessor E-Square Leisure PVT LTD. Said contractual agreement does not include any terms for reimbursement of cooking gas and about method of actual determ....
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.... own account. It is submitted that explanations in rule have to be read with conditions. As per condition (i), the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient. Here, applicant, E-Square Leisure PVT LTD is lessor, the supplier. Contractual agreement is between E Square Leisure PVT LTD and recipient of supply for renting of immovable property. There is incidental supply of electricity, water, cooking fuel from supplier to lessee. As per point no.3 to annexure I, in accordance with contractual agreement, aforesaid electricity and water charges, though are recovered from lessee at actual, condition (i) to Rule 33 of CGST Rules is not fulfilled. Therefore, for reimbursed electricity charges where electricity is supplied by power company and water charges where potable water is supplied by municipal corporation, applicant does not fulfil all the conditions to be a 'pure' agent', as laid down in Rule 33 of CGST Rules: Therefore, contention of applicant that reimbursement of expenses of electricity, water charges can be qualified as expenses incurred by lessor E-Square Leisure PVT LTD, a....
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....ten submissions made by the applicant as well as the jurisdictional officer and the applicable provisions of the GST laws in this regard. In this case applicant intends to enter into a contractual obligation/agreement of renting of immovable property that is to say 'Theatre', with the lessee on fixed rentals. The applicant has fixed monthly amounts towards rent, based on periods, from the commencement date. Applicant has no issue on paying GST on rental income, property tax, cooking fuel and security deposits. In addition to the giving of the immovable property on lease, the applicant also intends to provide utilities, such as electricity, for Theatre and for any signage of the lessee installed at the complex/facade of the complex through power Supply Company and running of DG and HVAC sets and potable water and RO treated water through facilities installed in the complex. The utility charges such as electricity charges including cost of DG and HVAC for electricity consumed would be recovered from lessee based on the reading shown in the sub-meter provided by the applicant, so also the consumption of potable water and RO treated water charges would be recovered based on the reading....
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....he Theatre premises, of conducting, operating and running, the business of exhibition of cinema/films/movies and entertainment in and/or from the Theatre and includes the business/es similar, allied, ancillary, incidental and related thereto by the Lessee viz. retailing of variety of food and beverages; concession counter/s, advertisement of any available formats of any nature (including on and off screen advertisements), promotional activity, salt of cinema/ movie merchandise, memorabilia, food courts, gaming and entertainment, ATM, etc., along with the right to the Lessee, its management, employees, servants, agents, customers and persons authorized by the Lessee, to use the entrances; doorways, entrance hall, stair cases, landings are passages in the complex for the purpose a fingress and egress from the Theatre the exclusive use and benefit of the utilities/ facilities provided in the Theatre, the exclusive use and benefit of the operating licenses for operating the Theatre. 1.2. The reference to the Theater in this DEED shall means and include what is provided in this clause: 2. TITLE / MORTGAGE: - 6. TENURE & LOCK-IN-PERIOD - The Tenure of this DEED shall be for a....
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.... from the date of invoice. Lessee shall always keep deposited an amount equivalent to 2 months of estimated consumption of utility charges with the Lessor in advance. 9. TAXES: Property Taxes: The past, present and future municipal taxes, property taxes and also all other taxes, duties, cases, fees and levies of any nature whatsoever levied and / or imposed by the concerned statutory/local Authority in respect of and / or relating to the Theatre and the Complex (collectively referred to as "Property Taxes ") shall be borne and paid solely by the lessor GST on Rent and Security Deposit: The applicable GST on the Rent and Security Deposit shall be paid by the lessee. Subject to the lessee paying the GST in time, the Lessor shall, in due compliance of its obligations, remit the GST so charged (if any) to the Lessee, to the appropriate government authority and file GST returns as prescribed, within the statutory timelines, mentioning all appropriate and relevant information on the GST platform, which enables the Lessee to claim timely credit of GST in the appropriate GST registration against the Tax invoice issued by the Lessor. In the event, the credit of GST is not granted o....
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.... Theatre and Parking are made available, at least 45 minutes, before the beginning of the first show till, at Least 45 minutes, after the end of last show (iii) to engage proper agencies for cleaning, washing, Sweeping and housekeeping all the Common Areas and areas outside the Theatre, provide garbage bins and ensure the service of garbage collection and timely disposal of the same. (iv) that the common Areas and areas outside the Theatre, lighting and HVAC shall be fully operational and functional at their full or requisite capacity, on an uninterrupted basis every day for 365/366 days in a Year and shall attend/cause to attend all repairs and servicing in respect thereof in a timely and prompt manner; (v) to maintain. repair, replace & upkeep of common and dedicated, equipment & utilities, not limited to gardening and landscaping expenses, all Parking Area, passages. corridors, courtyards, lift halls, elevators, escalators, Diesel power Generating ("DG set (if not dedicated for Theatre), electrical units and panels, basement, passages, staircases, lobbies, air conditioning system, firefighting plant rooms, roads, paving 's, lights, drains, sewers and other amenities loc....
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....nt which to provide within the Theatre, shall be provided and maintained in the Complex throughout. The Tenure of this DEED and the same shall, subject to Force Mgjeure, be fully operational and functional, at their full load / capacity, or an uninterrupted basis at all times during the Tenure of this DEED at the costs of the Lessor. On and from the Commencement date lessee shall be liable to maintain the equipment in Theatre at its cost. The existing AMC's for the equipment in the Theatre shall be renewed by lessee as and when it is due. Any consumables I not part of AMC shall be procured/billed to the lessee. During the Tenure of the leases the lessee shall be liable to maintain the plant and machinery, equipment, fitting, fixtures, etc., installed inside the Theatre and the Lessor shall maintain the plant and machinery, lights, fittings, fixtures, DG, etc. installed outside the Theatre which includes the facade and Complex roof. It is clarified that any equipment outside the Theatre premises but dedicated for the Theatre shall be maintained by lessee. However any replacement of such equipment shall be done by the lessor. The lessee shall be at liberty to carry out during ever....
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....ervices are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example, service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such Service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. From the scrutiny of clauses of the agreement and applying the above test to the facts of the present case we find that 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. We must accept as a matter of fac....
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....h supply; and (b) after the supply has been effected, if- (i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply. Thus the value of supply includes all amounts that pertains to specific supply for the purpose of levy of tax except, subsidies provided by the government and the value of discount. However, as per Rule 33 of GST Valuation Rules, 2017 the expenditure or cost incurred by a supplier, as a pure agent of the recipient of the supply shall be excluded from the value of supply. However, such exclusion of expenditure incurred as a pure agent is possible where the conditions are required to be considered as a pure agent and further conditions stipulated in the rules are satisfied by the supplier. The relevant rule is reproduced as below: Rule 33. Value of supply of services in case of pure agent, Notwithstanding anything contended in the provisions of this Chapter, the expenditure or costs incurred b....