Electricity Charges Recovered by Builders on Actuals as Pure Agent Not Taxable as Service: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise, andService Tax Appellate Tribunal (CESTAT) ruled that electricity charges recovered by builders from tenants on actual basis as a pure agent are not taxable as services.

Parvati Resource Pvt. Ltd., the appellant, was engaged in real estate and renting activities. The department demanded service tax on electricity charges collected from tenants, treating them as part of the value of renting of immovable property.

The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld it. Aggrieved by this decision, the appellant approached the CESTAT.

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The appellant’s counsel argued that electricity charges were collected strictly on the basis of actual consumption recorded in sub-meters installed for tenants, proportionately covering fixed charges, and were deposited with the state electricity licensee. They argued that the appellant acted only as a conduit or pure agent, without adding any markup, and hence these charges were outside the scope of taxable services.

They relied on judicial precedents such as TICEL Bio Park Ltd. v. Commissioner of GST & Central Excise and Intercontinental Consultants and Technocrats Pvt. Ltd. v. UOI, to argue that reimbursements on actuals cannot form part of the taxable value.

The revenue’s counsel argued that electricity charges collected by the appellant were part of the overall consideration received for renting of immovable property and were correctly included in the taxable base.

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The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that electricity charges were realized only on actual consumption basis and directly deposited with the electricity supplier. The tribunal observed that the department had not shown that the appellant collected more than the actual consumption recorded in meters.

The tribunal pointed out that since the appellant functioned as a pure agent in respect of electricity supply, such recoveries could not be included in the value of taxable services. The tribunal explained that reimbursable expenses recovered on actuals are not liable to service tax. The service tax demand on electricity charges was set aside.

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