TaxTMI 
TaxTMI 
GST on recovery of electricity charges under lease and PPA
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....ST on recovery of electricity charges under lease and PPA<br> Query (Issue) Started By: - Hithik Dated:- 28-7-2026 Last Reply Date:- 31-7-2026 Goods and Services Tax - GST<br>Got 9 Replies<br>GST<br>Dear Experts, Mr. B having onsite solar power purchase agreement with Mr. A wherein Mr. A has installed & owns solar & metering connection on the premises of Mr. B. further, Mr. B has leased out the said premised to Mr. C, Mr. A issues bill of supply to Mr. B say 15 Rs per unit for solar units consumed by Mr. C (being supply of electrical energy, no GST is charged by Mr. A to Mr. B), further Mr. B issues Tax Invoice to Mr. C for Rent and a separate bill for electricity units consumed at 18 per unit (i.e., including a markup over the rate char....
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....ged by Mr. A) Query: 1. In the above facts, where say no separate PPA or electricity supply agreement exists between Mr. B and Mr. C, whether the recovery of electricity charges by Mr. B would it be regarded as part of the composite supply of lease agreement and therefore would attract GST along with rent or continue to qualify as an exempt supply of electrical energy? 2. Further, if a separate PPA/electricity supply agreement exists between Mr. B and Mr. C, under which electricity is billed separately, would such supply qualify as an exempt supply of electrical energy under GST, notwithstanding that Mr. B procures the electricity from Mr. A and is not orignator and recovers it from Mr. C? 3. Alternatively, if Mr. B merely recov....
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....ers the exact amount charged by Mr. A (i.e., 10 per unit without any markup) from Mr. C, similar to reimbursement of electricity charges commonly seen in commercial lease agreements wherein landlord recovers from tenant as charged by DISCOMS, can Mr. B be regarded as acting as a pure agent which would be excluded from the value of supply? Please share your opinions. Thank you in advance!! Reply By Sanjeev Agarwal: The Reply: Issue turns on the characterization of the supply rather than the nomenclature adopted in the invoices. My views: 1. No separate PPA between B and C In my view, GST is likely to apply on the entire amount recovered towards electricity. Where the lease agreement is the only contract and electricity is su....
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....pplied as an incidental facility to enable enjoyment of the premises, the recovery of electricity charges (particularly with a markup) is likely to be regarded as naturally bundled with the renting service and form part of a composite supply, with renting being the principal supply. Consequently, the electricity recovery may be includible in the value of taxable renting under sections 2(30), 2(90) and 15 of the CGST Act. The fact that electricity is an exempt supply when supplied independently may not, by itself, alter this characterization. 2. Separate PPA/electricity agreement A stronger case exists for treating the transaction as an independent supply of electrical energy, provided the electricity supply is genuinely severable from....
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.... the lease, separately contracted, separately billed, separately measurable through dedicated metering and not merely an ancillary obligation under the lease. However, litigation risk remains because Mr. B is not the generator or DISCOM but merely procures electricity from Mr. A and supplies it onward. The exemption for "electrical energy" does not expressly restrict the supplier to a generator or distribution licensee, but the department may dispute whether B is making an exempt supply of electrical energy or merely recovering utility charges. 3. Recovery at actuals (Pure Agent) Merely recovering the exact amount charged by Mr. A does not automatically qualify Mr. B as a pure agent under Rule 33. The pure agent conditions are stringe....
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....nt and require, inter alia, that B incurs the expenditure on behalf of C, separately indicates the amount in the invoice, and neither intends to hold nor use the services on his own account. In the present facts, the PPA is between A and B, making B the recipient of electricity. Therefore, the pure agent argument appears weak unless the contractual arrangement itself satisfies Rule 33. Overall: The separate PPA with dedicated metering provides the strongest basis for claiming exemption as an independent supply of electrical energy. The pure agent argument is comparatively less sustainable on the stated facts. The matter remains litigation-prone, and the contractual documentation will be decisive. Reply By Sadanand Bulbule: The Reply:....
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.... Refer Point No. 3 of the CBIC Circular No. 206/18/2023 dated 20/09/2023 as regards to the taxability of such transactions. Reply By KASTURI SETHI: The Reply: Answer to Query No.1 : It is composite supply. Peruse the following decisions of AAR/AAAR :- 2021 (1) TMI 1255 - APPELLATE AUTHORITY FOR ADVANCE, RAJASTHAN - In Re : Harish Chand Modi 2019 (4) TMI 421 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA - IN RE : E-SQUARE LEISURE PVT. LTD. Reply By KASTURI SETHI: The Reply: Ans. to Query No.2 : Separate invoices, separate agreements etc. would not help inasmuch as leasing out/ renting of immovable property and supply of electricity are integrally co-related. Main service cannot be provided without supply of electric....
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....ity. Both are naturally bundled. Separation for the sake of availing exemption from GST for electricity supply is not possible. Reply By KASTURI SETHI: The Reply: Regarding Query No.3 (Pure Agent Issue) go through the following decision of AAR, West Bengal:-(in favour of the applicant) 2025 (3) TMI 160 - AUTHORITY FOR ADVANCE RULING, WEST BENGAL - In re : Mega Flex Plastics Ltd. Reply By Sadanand Bulbule: The Reply: Dear all My considered review is: In strict law, electricity reimbursements bundled with commercial rent form part of a Composite Supply and are subject to 18% GST. The argument that a landlord is a "pure agent" for utility pass-throughs is legally fragile. While passing charges at ....
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....actuals provides commercial fairness, it fails the statutory tests of Section 2(30), Section 8, and Section 15(2)(c) of the CGST Act. In any judicial review independent of administrative concessions, the primary Act will prevail, making electricity reimbursements taxable at the principal rate of 18%. In other words: Normally building owner has to get electicity connection from DISCOMs to his building either for residential or commercial utility, essentially to make such buildings usable for him or otherwise. And consumption of such electriclty is metred in his name for billing purpose. As such it cannot be stated/inferred that, he is engaged in the activity of supply of electricity stand alone to the tenants. Therefore practically and....
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.... statutorily, it shall be construed as " Composite Supply" as without one, other is unusable. Thus naturally such transaction is taxable at 18% as per the law. Reply By KASTURI SETHI: The Reply: Sh.Sadanand Bulbule Ji, Sir, I fully agree with your understanding, interpretation, analysis and conclusion. My Opinion : "Composite supply" and "Pure Agent" cannot operate simultaneously. Both concepts operate in mutually exclusive fields. Act will prevail over Rules, Notifications and circulars. In this context, two judgements of Supreme Court are worth reading and these are as under:- A rule cannot override or be contrary to a Section ------CCE Vs. Ashok Arc reported as 2004 (12) TMI 94 - Supreme Court Rules and Notifica....
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....tions cannot override Act and cannot be derogatory to the object of the Act--- UOI Vs. Jalyan Udyog - 1993 (9) TMI 108 - Supreme Court Reply By Sadanand Bulbule: The Reply: Dear Sirji I humbly bow to your unconditional acknowledgement. Reply By Sadanand Bulbule: The Reply: Plz read it as bow down<br> Discussion Forum - Knowledge Sharing ....