Electricity charges bundled along with rent or maintenance fee collected by real estate companies, malls, airport operators, etc from occupants will attract GST, the Central Board of Indirect Taxes and Customs (CBIC) has said. However, it will not be taxed when the real estate company, mall or airport authority is acting as an agent of the state electricity board or DISCOMs.

This clarification is critical as electricity is out of GST’s ambit

In a circular, CBIC said that doubts were raised on the applicability of GST on the supply of electricity by the real estate companies, malls, airport operators, etc., to their lessees or occupants. The issue was discussed at the Oct 7 GST Council meeting. Based on the recommendation by the Council, the board clarified: “Whenever electricity is being supplied bundled with renting of immovable property and/or maintenance of premises, as the case may be, it forms a part of composite supply, and shall be taxed accordingly.”

Composite supply means supply of two or more goods and/or services naturally bundled. Predominant of these will be treated as the principal supply and rate of that will be applicable on entire supply.

Accordingly, the CBIC said that in the said matter, the principal supply is renting of immovable property and/or maintenance of premise and the supply of electricity is an ancillary supply. “Even if electricity is billed separately, the supplies will constitute a composite supply, and therefore, the rate of the principal supply i.e., GST rate on renting of immovable property and/or maintenance of premise, as the case may be, would be applicable,” the board said. This means the whole supply including electricity would attract GST at the rate of 18 per cent.

However, the board clarified that where the electricity is supplied by the Real Estate Owners, Resident Welfare Associations (RWAs), Real Estate Developers etc., as a pure agent, it will not form part of value of their supply. Further, “where they charge for electricity on actual basis that is, they charge the same amount for electricity from their lessees or occupants as charged by the State Electricity Boards or DISCOMs from them, they will be deemed to be acting as pure agent for this supply,” the board said.

According to Prateek Bansal Tax Partner, White and Brief - Advocates & Solicitors, typically, the reimbursement of electricity charges is coupled with some principal supply of service, whether renting or maintenance service, as the case may be. While the Circular has carved out an exception in case of “pure agent” where the reimbursement is collected at actuals, it will be difficult to establish non-existence of a principal supply as a person cannot be considered to solely act as “pure agent” for the purpose of collecting and discharging electricity charges. However, “to take shelter under the exclusion, the businesses may obtain an authorization from the actual consumer of electricity to act as its “pure agent” and to make payment to third parties on its behalf,” he said.

There are some other issues too. “Composite supply means a supply consisting of two or more taxable supplies. Thus, when Supply of electricity is exempt, how it can be part of composite Supply by Landlord. In Circular they used the words ‘Supply’ of electricity and still clarified it to be taxable,” said Pawan Arora, Partner with Athena Law Associates.

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