Electricity Charges Reimbursed by Sub-Lessee Not Taxable as Lessee Acts as Pure Agent | AAR

Case Details: Mega Flex Plastics Ltd., In re - [2025] 173 taxmann.com 711 (AAR - WEST BENGAL)

Judiciary and Counsel Details

• Dr. Tanisha Dutta & Joyjit Banik, Member
• Vinay Kumar Shraff & Dev Kumar Agarwal, Advs. for the Petitioner.

Facts of the Case

The applicant had obtained a land on lease from the State Industrial Development Corporation for the purpose of infrastructure development. Subsequently, the applicant sub-leased the said land to a third party for setting up a leased warehouse. In the course of such sub-leasing arrangements, the applicant was responsible for supplying electricity to the sub-lessee and issued periodic invoices for the reimbursement of electricity charges. These charges reflected the actual cost incurred for electricity consumption by the sub-lessee, without any markup or additional consideration. The applicant approached the Authority for Advance Ruling (AAR), West Bengal, seeking a determination on whether such reimbursement of electricity charges should form part of the value of supply under Section 15 of the CGST Act, and whether GST would be applicable. The applicant contended that it merely facilitated the supply of electricity procured from the utility company and recovered the exact amount from the sub-lessee without earning any margin, thereby acting as a ‘pure agent’ within the meaning of Rule 33 of the CGST Rules.

AAR Held

The Hon’ble Authority for Advance Ruling, West Bengal, held that the applicant fulfilled the conditions prescribed under Rule 33 of the CGST Rules, and could be regarded as a ‘pure agent’ in relation to the supply of electricity. It was observed that the electricity connection remained in the name of the applicant and that the applicant did not retain any portion of the charges recovered. Accordingly, the AAR ruled that the reimbursement of actual electricity expenses by the sub-lessee does not form part of the value of supply under Section 15 of the CGST Act. Since the applicant neither rendered an independent supply of electricity nor earned any consideration from such reimbursement, GST was held to be inapplicable on the same.

List of Cases Reviewed

• Prinsep Association of Apartment Owners, In re [2024] 165 taxmann.com 387/89 GSTL 295 (AAR – WEST BENGAL)(para 4.7) distinguished