Under GST many landlords charge GST on each and every money they receive from tenant for whatever purpose. In this advance ruling we are going to understand when it’s required to charge GST and when it’s not.
The advance ruling was provided by Gujarat Authority of Advance ruling in an application by M/s Gujarat Narmada Valley Fertilizers & Chemicals Ltd., Narmada Nagar, Bharuch, Gujarat dt. 17.09.2020.
M/s. Gujarat Narmada Valley Fertilizers & Chemicals Ltd.( hereinafter referred to as “GNFC” or “lessor” or “Applicant”) has entered into a lease agreement dated 01.12.2015 with the President of India acting through the Commissioner of Central Excise, Audit-I, Ahmedabad (hereinafter called the “lessee”) to provide along with the building for a rent the interior infrastructure like partitions, cabins, work stations, electrical air conditioners, fire safety systems, tables, chairs etc. at agreed monthly rent.
The applicant submitted that CGST department was paying service tax on total consideration of rent including that on electricity charges to the applicant up to 30.06.2017. However, CGST department has stopped paying GST component on electricity and incidental charges from 01.07.2017 under the pretext that GST is not applicable in terms of Rule 33 of the CGST Rules, 2017 on such electricity charges even though such charges are clearly incidental expenses in respect of supply of service of renting or immovable property.
They are charging GST on electricity charges, recovered as a part of total consideration for renting of immovable property and recovering the same from other tenants and is also paying GST to respective governments.
The applicant further submitted that they have taken opinion from different GST consultants and advised that electricity charges or incidental charges are in relation to composite supply of principal service of renting of immovable property, any incidental charges or expenses in respect of supply of service shall form part of value of taxable supply in terms of clear provisions of Section 15 of the CGST Act, 2017.
The applicant submitted that in terms of clause 9 of the agreement, “the Govt. of India” shall pay all charges in respect of electric power, Air-conditioning charges, light and water used along with the applicable taxes thereon for the said premises during the continuance of these presents”.
Further, the applicant has bonafide believe that in terms of Section 15 (1) of CGST Act, 2017 they are liable to pay GST on rent including electricity charges and other incidental charges relating to renting.
The applicant submitted that they have let out some other part of its premises at GNFC tower, Bodakdev, Ahmadabad to other parties and is charging GST even on electricity charges to other and they are paying GST on rent charges including electricity charges; that electricity bill for electricity used in rented premises is received in the name of GNFC and GNFC is the person liable to pay this amount of bill for entire premises located at GNFC Info Tower, Bodakdev, Ahmedabad and charged proportionate amount of electricity charges from different tenants including the office of Commissioner (Audit). GNFC has charged GST (CGST+SGST) on rent amount including that of amount charged for electricity and other charges.
Dy. Commr. Vide letter dated 24.01.2018 informed GNFC that electricity payment is taken by GNFC on reimbursable basis constitutes the expenditure incurred by GNFC on behalf of Commissioner of CGST (Audit) Commissionerate and therefore, no GST is applicable in terms of Rule 33 of CGST Rules, 2017.
Questions raised:
1. When landlord charges electricity or incidental charges in additional to rent as per Lease Agreement for immovable property rented to the tenant, is landlord liable to pay and recover GST from tenant on electricity or incidental charges charged by it?
2. Can electricity charges paid by landlord to Torrent Power Ltd. (the supplier of electricity) for electricity connection in the name of landlord and recovered based on sub meters from different tenants be considered as amount recovered as pure agent of the tenant when the legal liability to pay electricity bill to Torrent Power Ltd. is that of landlord?
Ruling:
First of all it is made clear that the latter part of the first question raised by the applicant to the effect whether they are liable to recover GST from the tenant on the electricity or incidental charges charged by it is outside the purview of the scheme of advance ruling.
The Advance Ruling authorities can only give a decision whether the applicant are liable to pay GST on such charges or otherwise. Whether such GST (if paid) can be recovered from the tenant or otherwise is a civil matter which has to be decided in terms of the agreement entered into by the two parties and the Advance Ruling authority is not empowered to comment on such issues.
It is the claim of the applicant that the electricity charges are incidental charges collected by them in relation to the supply and as such the same was liable to be added to the value of supply in terms of Sec. 15(2)(c) of the CGST Act, 2017.
The language employed indicates that the following amount is includible in the value:
- incidental expenses charged by the supplier to the recipient of the supply;
- commission and packing
- any amount charged for anything done by the supplier in respect of the supply of goods or services or both.
In the agreement it has been mentioned that ““the Govt. of India” (lessor) shall pay all charges in respect of electric power, Air-conditioning charges, light and water used along with the applicable taxes thereon for the said premises during the continuance of these presents”.
The clause further indicates that the agreed upon rent is for the space of 37158 Sq. ft along with all internal
infrastructure. This fact makes it expressly clear that the value of supply of renting of premises has been fixed at Rs. 20,80,848/- which includes the internal infrastructure. In view of such an agreement, it can be said that the amount charged towards internal infrastructure (if any separately charged) would be includible by virtue of the clause ‘any amount charged for anything done by the supplier in respect of the supply of goods or services or both’.
Had a similar clause been incorporated in the agreement regarding ‘electricity charges’, the same would have been includible. However, there is no such clause regarding electricity charges.
Careful scrutiny of the clause indicates that the supplier of the service has made it mandatory that the Govt. of India is required to pay all the charges in respect of electric power used.
The above indicates that 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.
Based on the above facts it is clear that the liability of payment of electricity expense is that of lessor/ tenant and tenant pays such amount to the landlord just because the bill comes in the name of landlord and thus to solve practical difficulty tenant make payment to landlord for its share of electricity.
This won’t make it cover under 15(2)(c) and liable to GST.
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