CESTAT Ruling: Electricity Charges Collected by Builders on Actuals Not Taxable as Services
The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that electricity charges collected by builders from tenants on an actual basis, acting as pure agents, are not taxable as services.
Service TaxReal EstateCestatElectricity ChargesPure AgentReal EstateSep 19, 2025
Parvati Resource Pvt. Ltd., the appellant, was engaged in real estate and renting activities. The tax department demanded service tax on the electricity charges collected from tenants, treating them as part of the value of renting immovable property. The adjudicating authority and the Commissioner (Appeals) upheld this demand, leading the appellant to approach the CESTAT.
The appellant’s counsel argued that the electricity charges were collected strictly on the basis of actual consumption recorded in sub-meters installed for tenants, covering fixed charges proportionately, and were deposited with the state electricity licensee. They emphasized 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, which state that reimbursements on actuals cannot form part of the taxable value.
The revenue’s counsel, on the other hand, argued that the electricity charges collected by the appellant were part of the overall consideration received for renting immovable property and were correctly included in the taxable base.
The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that the electricity charges were realized only on an actual consumption basis and directly deposited with the electricity supplier. The tribunal noted that the department had not shown that the appellant collected more than the actual consumption recorded in meters. The tribunal further explained 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. Reimbursable expenses recovered on actuals are not liable to service tax, and the service tax demand on electricity charges was set aside.
This ruling provides a clear guideline for builders and property managers, ensuring that they can collect and pass on electricity charges to the electricity supplier without incurring additional service tax. It also helps in reducing disputes and legal challenges related to the taxability of such charges.
Frequently Asked Questions
What is the main ruling of the CESTAT in this case?
The CESTAT ruled that electricity charges collected by builders from tenants on an actual basis, acting as pure agents, are not taxable as services.
Why were the electricity charges not considered taxable?
The charges were collected strictly on the basis of actual consumption recorded in sub-meters and deposited with the state electricity licensee, without any markup, making them outside the scope of taxable services.
What judicial precedents were cited in the appellant's argument?
The appellant cited TICEL Bio Park Ltd. v. Commissioner of GST & Central Excise and Intercontinental Consultants and Technocrats Pvt. Ltd. v. UOI, which support the argument that reimbursements on actuals cannot form part of the taxable value.
Who were the members of the CESTAT bench that made this decision?
The bench comprised Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member).
What is the significance of this ruling for builders and property managers?
This ruling provides a clear guideline that builders and property managers can collect and pass on electricity charges to the electricity supplier without incurring additional service tax, reducing disputes and legal challenges.
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