The Authority for Advance Ruling (AAR), Uttar Pradesh has held that Goods and Services Tax (GST) is applicable on the Supervision Charges collected by the Electricity Distribution Company for Electricity Line Installation while the Material Costs are exempt from GST when it is borne by the service recipient himself.
The applicant, M/s. Purvanchal Vidyut Vitran Nigam Limited, represented by Shri Ajay Kumar Mishra sought an advance ruling on two specific questions related to the determination of taxable value under GST.
The first scenario involved the situation where the applicant arranged the entire material and installation work on behalf of customers and charged them as reimbursement towards the cost of material and installation. The applicant’s fee for their service was only the supervision charges.
The second scenario covered cases where the customers arranged the material and execution work themselves and the applicant’s role was limited to supervision. Here, the applicant charged supervision charges but did not include the cost of material and execution work in the invoice since these costs were borne by the customers.
The ruling provides clarity on the GST applicability in different scenarios where the cost of material and execution work is involved.
In the first case, where the applicant arranged all the work including material and its supervision, the GST charged on the cost of material and supervision charges was deemed acceptable.
However, in the second case, the AAR ruled that GST should only be charged on the supervision charges since the cost of material and execution work was the sole responsibility of the customers and was being borne by them.
The authority noted that the construction of power transmission lines, which were immovable property, did not qualify as goods under the GST Act. Additionally, since no consideration was involved in the activity, it did not meet the criteria of being a supply under GST.
The ruling also addressed the concept of a “pure agent”. While the applicant’s role as a pure agent was discussed, the authority refrained from offering comments on this issue due to a pending case in the Supreme Court.
The ruling highlighted the need to accurately determine the taxable value of the supplies and the tax treatment of supervision charges and material costs.
In conclusion, the two-member authority comprising Shri Rajendra Kumar (CGST Member) and Shri Harilal Prajapati (SGST Member) established that GST is applicable on supervision charges billed for services provided. However, when customers bear the cost of material and execution work, those costs should not be subjected to GST if the company acts as a pure agent.
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