Service tax on electricity bill paid by tenants

This query is : Resolved

CA ASHISH GUPTA (Querist)
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16 November 2011 Whether service tax is to be paid on the electricity bill issued by the landlord to tenant, when landlord supply electricity to tenants via electricity board and DG and there is a markup in cost and invoice.
In my opinion electricity is goods as upheld by Constitution Bench of the Supreme Court in State of A.P. etc. v. National Thermal Power Corpn. Ltd. and Ors. etc. (2002-TIOL-107-SC-CT and it is sale of goods. Electricity is also included in excise tariff and also in all state VAT schedules.

PUNEET GOYAL

PUNEET GOYAL (Expert)
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20 November 2011 You are right that electricity is goods and should not be subject to service tax. But if it is provided as a facility along with any other taxable services (e.g., renting of immoveable property) then it should be subject to service tax and accordingly service should be paid irrespective of the fact that separate invoice is raised for electricity bill. For your understanding read the following provision of the act.

As Per Explanation 1 of section 65(105)(zzzz)
“Immovable property”, for the purpose of section 65(105)(zzzz), includes-
(i) building and part of a building, and the land appurtenant thereto;
(ii) land incidental to the use of such building or part of a building;
(iii) the common or shared areas and facilities relating thereto; and
(iv) in case of a building located in a complex or an industrial estate, all common areas and
facilities relating thereto, within such complex or estate,

As Per Section 65 (90a)
Renting of immovable property” includes renting, letting, leasing, licensing or other similar
arrangements of immovable property for use in the course or furtherance of business or commerce

As Per Rule 5 of Service Tax (Determination of Value) Rules, 2006
(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

As Per Explanation2 of Above Rule 5
For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.
Illustration 2.– In the course of providing a taxable service, a service provider incurs costs such as
traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice
issued to the recipient of service. In such a case, the service provider is not acting as an agent of the
recipient of service but procures such inputs or input service on his own account for providing the
taxable service. Such expenses do not become reimbursable expenditure merely because they are
indicated separately in the invoice issued by the service provider to the recipient of service.

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