2025(02)LCX0354(AAAR)

Duet India Hotels (Hyderabad) Private Limited

decided on 20-02-2025

TELANGANA STATE APPELLATE AUTHORITY FOR ADVANCE RULING
(Goods and Services Tax)
1st Floor, Commercial Taxes Complex, M.J. Road, Nampally,
Hyderabad 500 001

Order-in-Appeal No. AAAR/02/2025
(Passed under Section 101 (1) of the Telangana Goods and Services Tax Act, 2017)

PREAMBLE

1. In terms of Section 102 of the Telangana Goods and Services Tax Act, 2017 (TGST Act, 2017 or the Act), this Order may be amended by the Appellate authority so as to rectify any error apparent on the face of the record, if such error is noticed by the Appellate authority on its own accord, or is brought to its notice by the concerned officer, the jurisdictional officer or the applicant within a period of six months from the date of the order. Provided that, no rectification which has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made, unless the applicant or the appellant has been given an opportunity of being heard.

2. Under Section 103 (1) of the Act, this advance ruling pronounced by the Appellate Authority under Chapter XVII of the Act shall be binding only.

(a) On the applicant who had sought it in respect of any matter referred to in sub-Section (2) of Section 97 for advance ruling;

(b) On the concerned officer or the jurisdictional officer in respect of the applicant.

3. Under Section 103 (2) of the Act, this advance ruling shall be binding unless the law, facts or circumstances supporting the original advance ruling have changed.

4. Under Section 104 (1) of the Act, where the Appellate Authority finds that advance ruling pronounced by it under sub-Section (1) of Section 101 has been obtained by the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the appellant as if such advance ruling has never been made.

Subject :- GST - Advance Ruling TSAAR No: 48/2022 dated: 14.07.2022 passed by Telangana State Authority for Advance Ruling in respect of M/s Duet India Hotels (Hyderabad) Private Limited - Reference to Appellate Authority for lack of uniform decision - Order-in-Appeal passed - Reg.

1. The subject Advance Ruling Order No: 48/2022 dt: 14.07.2022 passed by the Telangana State Authority for Advance Ruling (Goods and Services Tax) (“Advance Ruling Authority”/“AAR”/“lower authority”) is referred to this Authority in terms of Section 98 (5) of CGST/SGST Act, 2017 for hearing and decision on the questions on which advance ruling is sought for due to difference of opinion between the members of lower authority. The advance ruling is passed in respect of M/s. Duet India Hotels (Hyderabad) Private Limited (GSTIN: 36AADCD1031G2Z7).

2. At the outset, it is made clear that the provisions of both the CGST Act and the TGST Act are identical except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the corresponding provision under the TGST Act and vice-versa. Further, for the purposes of this Advance Ruling, the expression 'GST Act' would mean a common reference to both CGST Act and TGST Act.

Brief facts of the case:

3. Ms. Duet India Hotels (Hyderabad) Private Limited (“Duet India/Lessor”) are engaged in the business of running hotels. They are owner of 'Holiday Inn - Express & Suits Hyderabad' (“the Hotel”). The hotel is managed by the Intercontinental Hotel Group, having its principal place of business in Gurgaon, India. M/s. The Curry House Food's Private Limited (“Lessee”) is engaged in the business of operation of restaurants. A Leave and License Agreement (“ Agreement”) has been entered between the Lessor and Lessee. As per the terms of the agreement, the Lessor has granted licence to the Lessee to use the specified area (“Licensed Premises”) of the hotel for operating a restaurant. For this purpose, Lessee has agreed to pay monthly licence fee as a consideration to the Lessor.

4. In addition to the license fees, the Lessor is collecting other charges from the Lessee towards common facilities for security, cleaning of facade and common areas, i.e., entrance, etc. as per the agreement. These charges are being collected from the Lessee, in the ratio of the area of licensed premises to the total area. Further, the Lessor is also collecting electricity and water charges as per the actual meter readings. Presently, the Lessor is charging GST @ 18% on licence fee. Space Rental, Common charges, electricity charges and water charges are payable by the Lessee. The Lessor is issuing separate invoices towards supply of renting of immovable property ('space rental') service and reimbursement of electricity and water charges.

5. However, Lessee is said to be not paying the GST charged by the Lessor on electricity and water charges ostensibly on the ground that electricity and water charges are reimbursement of expenses by the Lessee to the Lessor and these do not qualify as a supply under GST. Further, the Lessee has also contended that even if these qualify as supply, the supply of electricity and water are specifically exempted from payment of GST.

6. In view of the above, Duet India had filed application for obtaining the advance ruling before Telangana State Authority for Advance Ruling, Hyderabad in respect of following questions:

a. Whether GST is applicable on electricity and water charges, which are being collected at actual by the Lessor from the Lessee?

b. If answer to Q. No.(a) is yes, then what is the nature of supply and applicable rate of GST?

7. The Authority for Advance Ruling, vide the impugned order, had given the following advance ruling on the questions raised.

    Since the Members of Advance Ruling Authority have expressed differing views and no uniform decision could be arrived at, the matter has been referred to the Appellate Authority, in terms of Section 98 (5) of CGST/SGST Act, 2017.

Details of Personal Hearing:

8. Personal Hearing was held on 17.02.2025. Shri V. Ranadeep, Chartered Accountant, Authorised Representative appeared on behalf of Duet India. The Ld. Authorised Representative reiterated the written submissions made in their appeal and requested to consider the same. Further, the Authorised Representative referred to the CBIC Circular No: 206/18/2023-GST dated 31.10.2023 and submitted that as per para 3.3 of the said Circular, Duet India is acting as a pure agent; that therefore, GST is not leviable on reimbursement of electricity and water charges.

Discussion and Findings:

9. This Authority has carefully gone through the case records and submissions made by M/s Duet India.

10. The main question to be decided is as to whether GST is applicable on electricity and water charges which are being collected at actuals by the Lessor from the Lessee. If so, what is the nature of supply and applicable rate of GST?

11. Before proceeding further in the matter, it would be pertinent to note that Duet India believes that the supply of electricity and water is part of the rental services and thus should attract GST as rental services (Para 11 of the application for advance ruling). However, as the Lessee does not agree with this position, the subject application has been preferred for advance ruling.

12. To appreciate the factual matrix, following clauses of the agreement entered between Lessor and Lessee are relevant:

12.1 Clause 7 of Article 4 of the license agreement (furnished by Duet India along with application): In consideration of the licensor having granted the license to use the licensed premises as set out in the agreement, the licensee shall, from commencement date, pay to the licensor a monthly fee equal to

12.2 Clause 25 of Article 9 of the agreement: Electricity, air conditioning and water charges will be borne by the licensee as per the actual meter readings and rates for the licensed premises (Sub Meters/ dual source energy meters to be installed by the Licensor for the Licencee) ..... In the event of any damage to the electrical installation and fitting caused by the Licencee intentionally or by gross neglect, the Licensor shall be entitled to recover from the Licencee the costs to be actually incurred for undertaking such repairs and replacement ......

12.3 Clause 39(j) of Article 11: Ensure availability of power and water-cost of use for the Business to be borne by the Licencee in accordance with this agreement.

13.1 Duet India is the owner of the premises which was let out on an agreed monthly consideration. The provision of facilities such as cleaning, electricity and water etc. are on their own account and are for effective and hassle-free enjoyment of the premises. In fact, as per clause 39(j) of Article 11 of the agreement between the parties, ensuring availability of power and water is an obligation of the Lessor. Even otherwise, the Lessee cannot fully and realistically enjoy the rented / leased premises unless electricity and water are provided. Therefore, supply of electricity and water form part of a composite supply of services by the Lessor to the Lessee.

13.2 This aspect has been amply clarified by CBIC, vide Circular No: 206/18/2023-GST dt: 31.10.2023. Para 3.2 thereof states that whenever electricity is being supplied bundled with renting of immovable property and/ or maintenance of premises, as the case may be, it forms a part of composite supply and shall be taxed accordingly. The principal supply is renting of immovable property and the supply of electricity is an ancillary supply. Even if the electricity is billed separately, the supplies will constitute a composite supply and therefore, the rate of the principal supply i.e., GST rate on renting of immovable property would be applicable.

13.3 In view of the above clarification, the contention of Duet India that they are billing separately for renting on one hand and electricity and water on the other hand is not tenable as the nature of supply cannot be altered merely by issuing separate invoices.

14.1 Duet India have claimed that they are acting as a 'pure agent' and have relied on para 3.3 of the aforesaid Circular dated 31.10.2023.

14.2 It is observed that this aspect has been clearly dealt by Member -Central in his ruling. To fall under the definition of 'pure agent', following conditions prescribed under Rule 33 of the CGST Rules, 2017 have to be fulfilled.

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

14.3 As stated in para 13 above, Duet India provides renting services along with other amenities like electricity, water etc. Without these amenities/ facilities, the building does not fetch any rental value. The intention of the Lessee is to avail the renting services provided by Duet India. A Lessee does not avail of amenities of electricity and water, without availing the renting service. Thus, no option is available to the Lessee. Further there must be an authorisation by Lessee on Lessor when he makes payment to Electricity Department. In the present case, there is no sub-meter in the name of Lessee. Hence, the question of Lessee authorising the Lessor to pay the charges does not arise. As such, the prescribed conditions are not fulfilled for Duet India to be treated as a pure agent.

15.1 We also observe that the Member-State has in his ruling held that electrical energy and water are exempted from tax under Notification No: 02/2017 dt: 28.06.2017 (vide SI No: 104 and SI No: 99 of said Notification respectively).

15.2 The services of transmission of electricity and distribution of electricity are exempted under Notification No: 12/2017-CT(R). The exemption entry covers consideration received for services supplied by way of transmission or distribution and not services in relation to transmission or distribution. Further, the exemption at entry at SI No: 25 of notification 12/2017-CT(R) is only available if the person is a Transmission or Distribution Licensee under the Electricity Act, 2003. The Lessor in this case, is neither a Distribution Licensee nor a Transmission Licensee. In any case, even if the view of the Member-State was to be treated as correct, it would not impact the rate at which tax is chargeable in the present case. As already held, it is a case of composite supply where 'renting of immovable property' is . the principal supply. Therefore, as per Section 8(a) of the CGST Act, the supply in the present case has to be treated as a supply of service of 'renting of immovable property', i.e., the principal supply and shall be leviable to tax accordingly.

16. In view of the above, the following order is passed.

ORDER

The ruling of Member-Central is upheld and the questions framed for advance ruling are answered accordingly.

To
Ms. Duet India Hotels (Hyderabad) Private Limited
Sy No: 27/1 to 27/4, Adjacent to Dell,
Nanakramguda, Serilingampally,
Hyderabad-500017.

    Copy to:

1. The Telangana State Authority for Advance Ruling, CT Complex, MJ road, Nampa ily, Hyderabad-500001.
2. The Principal Chief Commissioner of Central Tax & Customs, Hyderabad Zone-for information and for forwarding copies of the order to the concerned/ Jurisdictional officer of Central Tax.
3. The Commissioner of State Tax, Telangana state - for information and for forwarding copies of the order to the concerned/ Jurisdictional officer of Central Tax.