Electricity charges collected by lessor on sub-meter readings will amount to recovery by pure agent: Gujarat AAR

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Electricity charges collected by lessor on sub-meter readings will amount to recovery by pure agent: Gujarat AAR

Authority for Advance Ruling, Gujarat – M/s Gujarat Narmada Valley Fertilizers & Chemicals Ltd. – [2020] 123 taxmann.com 380 (AAR – Gujarat)
The applicant entered into a lease agreement with Govt. to provide a building on rent along with interior infrastructure (such as fittings, lightings etc.) for the use of Dept of Central Excise. Apart from charging the rental amount, the applicant also charged proportionate electricity charges from the lessee based on the sub-meter readings installed at the premises of lessee.
In the above backdrop, the applicant filed an application for Advance Ruling to determine whether they are liable to charge GST on such electricity charges charged by them.
In this regard, on perusal of rent agreement entered between the applicant and the lessee, the Gujarat AAR observed that the rental charges of the building and other infrastructure are fixed. Whereas, electricity charges are to be borne by the lessee on the basis of actual usage. The agreement specifically provides that the lessee will directly pay the amount of rental to the electricity company. The applicant has cast an onus on the lessee to pay the charges in respect of the electric power used by them directly to the electricity company.
It was held that the electricity charges would not be covered within the scope of ‘incidental expenses or any amount charged in respect of supply’ given under Section 15(2) of the CGST Act as it was not required to be incurred by the supplier.

The applicant has installed sub-meters to determine the actual usage of the electric power. It is held that applicant has collected electricity charges based on actual usage of the electric power. The expenses are purely of reimbursable nature and therefore would be covered within the scope of pure agent and thus not to be taxed.

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