Service tax on electricity bill raised to clients
This query is : Resolved
17 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.
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.
17 November 2011
Ashish in India there are laws for every activity... similarly there is law for generation and distribution of electricity.. Unless registered under the Electricity Act, 2003 no one can distribute (sell) the electricity. Therefore actually the owner cannot be said to selling electricity. The real issue in Mark up. If that would not have been there one could have gone into Pure Agent concept and the service tax would not have been demanded. But as there is mark up in my opinin service tax will be applicable...
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18 November 2011
Yes...you may be correct..but is service tax can be imposed on sale of goods...when seller does not have right to sell the goods. for example alcohalic beverages can not be sale without having a valid licence. when a person selling the wine without licence then he is liable for service tax.
21 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.
If the seller sales electricity independently without providing any taxable services then it will not be subject to levy of service tax otherwise it will be considered as part of cost incurred in providing taxable services and accordingly added in the value of taxable services.
If u r satisfied by my reply then say thanks by clicking on "THANK USER".
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.
If the seller sales electricity independently without providing any taxable services then it will not be subject to levy of service tax otherwise it will be considered as part of cost incurred in providing taxable services and accordingly added in the value of taxable services.
If u r satisfied by my reply then say thanks by clicking on "THANK USER".
22 November 2011
Dear Puneet,
I am not satisfied actually.
Lets discuss...
First of all whatever are the provision of service tax, service tax is a tax on service and central govt. is not entitle to tax sale of goods.
One thing is clear to you also that electricity is a goods.
Now come to second point, wheather electricity provided to client is a facility or a sale.
Sale means transfer of property in goods by one person to another.
In that case there is transfer of electricity, ownership is being transfered. so it is a sale.
Rule 5 as states above "cost incurred in the course of providing services"..the important thing is "in the course of".
Let me explain with an example- use of cream during facial is a cost/consumption in the cource of providing service. sale of cream by a saloon to its custmer, who is also availing facility of facial is not cost/consumed in the course of providing service.
Sale of spare parts during vehicle service is not cost/consumed in the course of providing service.
Charge of electricity is not fixed, it is based on actual usages. If in any month tenant doesnot use electricity, landlord will not charge for that.
So electricity provided should not be a service.
I am not satisfied actually.
Lets discuss...
First of all whatever are the provision of service tax, service tax is a tax on service and central govt. is not entitle to tax sale of goods.
One thing is clear to you also that electricity is a goods.
Now come to second point, wheather electricity provided to client is a facility or a sale.
Sale means transfer of property in goods by one person to another.
In that case there is transfer of electricity, ownership is being transfered. so it is a sale.
Rule 5 as states above "cost incurred in the course of providing services"..the important thing is "in the course of".
Let me explain with an example- use of cream during facial is a cost/consumption in the cource of providing service. sale of cream by a saloon to its custmer, who is also availing facility of facial is not cost/consumed in the course of providing service.
Sale of spare parts during vehicle service is not cost/consumed in the course of providing service.
Charge of electricity is not fixed, it is based on actual usages. If in any month tenant doesnot use electricity, landlord will not charge for that.
So electricity provided should not be a service.
24 July 2025
This is a classic and quite debated issue in service tax jurisprudence, so let me break it down clearly:
---
### Key points about **Service Tax on Electricity Supplied by Landlord to Tenant**
#### 1. **Electricity is a "Good", Not a Service**
* Electricity is classified as a *goods* (not a service). Supreme Court has upheld electricity as a *good* under State of A.P. v. NTPC (2002).
* Sale or supply of goods cannot attract service tax, which is a tax on *services*.
#### 2. **Whether Landlord is "Selling" Electricity?**
* Under the Electricity Act, 2003, only authorized licensees can sell electricity.
* Usually, landlord is just *recovering electricity charges* paid to the electricity board or through DG set.
* If landlord is **just passing on actual electricity cost** without markup, it’s usually seen as **reimbursement**, *not a sale or service*.
#### 3. **When Service Tax May Apply**
* If landlord adds a **markup or profit margin** on electricity charges, this is no longer mere reimbursement.
* Such markup may be considered part of the **renting of immovable property** service.
* Service tax can be levied on the **total amount charged by the landlord**, including electricity, as part of renting service.
#### 4. **Service Tax on Rent Including Electricity**
* Renting of immovable property service includes **all amounts charged to tenant** for facilities.
* According to Service Tax Rules and explanations, any costs or charges incurred for providing the taxable service must be included in the value.
* So, if electricity supply is part of renting arrangement and landlord charges markup, service tax applies on **total rent + electricity charge**.
#### 5. **If Electricity is Billed Separately**
* Even if electricity bill is issued separately by landlord, if it forms part of the service of renting property with markup, service tax applies.
* Pure supply of electricity without markup (just reimbursement) is outside service tax net.
---
### Summary Table
| Scenario | Service Tax Applicable? | Notes |
| --------------------------------------------------------- | ----------------------- | ----------------------------------------------------- |
| Electricity supplied at actual cost, no markup | No | Reimbursement only, not a service |
| Electricity supplied with markup/profit | Yes | Part of renting service, service tax applies on total |
| Electricity supplied separately, no other taxable service | No | Pure sale of goods (outside service tax) |
| Electricity supplied as part of taxable renting service | Yes | Service tax on entire amount charged |
---
### What Courts and Authorities Say?
* The **Supreme Court** clarifies electricity as goods — no service tax on pure sale of electricity.
* **Service Tax Dept** insists on levy if there is markup or bundled in taxable service.
* **High Courts** differ but mostly hold that if it’s part of renting service and charged with markup, service tax applies.
---
### Practical Advice
* If you are landlord charging electricity separately at **actual cost** without markup, no service tax.
* If you add **any markup or profit**, treat electricity as part of renting service and pay service tax on total.
* Keep clear records to show whether it is reimbursement or sale/service.
* If you want to avoid service tax, best is to bill electricity as a pure pass-through cost without markup.
---
If you want, I can help draft an explanation letter or advise on invoicing formats to support your case.
---
Would you like that? Or need help with anything else?
---
### Key points about **Service Tax on Electricity Supplied by Landlord to Tenant**
#### 1. **Electricity is a "Good", Not a Service**
* Electricity is classified as a *goods* (not a service). Supreme Court has upheld electricity as a *good* under State of A.P. v. NTPC (2002).
* Sale or supply of goods cannot attract service tax, which is a tax on *services*.
#### 2. **Whether Landlord is "Selling" Electricity?**
* Under the Electricity Act, 2003, only authorized licensees can sell electricity.
* Usually, landlord is just *recovering electricity charges* paid to the electricity board or through DG set.
* If landlord is **just passing on actual electricity cost** without markup, it’s usually seen as **reimbursement**, *not a sale or service*.
#### 3. **When Service Tax May Apply**
* If landlord adds a **markup or profit margin** on electricity charges, this is no longer mere reimbursement.
* Such markup may be considered part of the **renting of immovable property** service.
* Service tax can be levied on the **total amount charged by the landlord**, including electricity, as part of renting service.
#### 4. **Service Tax on Rent Including Electricity**
* Renting of immovable property service includes **all amounts charged to tenant** for facilities.
* According to Service Tax Rules and explanations, any costs or charges incurred for providing the taxable service must be included in the value.
* So, if electricity supply is part of renting arrangement and landlord charges markup, service tax applies on **total rent + electricity charge**.
#### 5. **If Electricity is Billed Separately**
* Even if electricity bill is issued separately by landlord, if it forms part of the service of renting property with markup, service tax applies.
* Pure supply of electricity without markup (just reimbursement) is outside service tax net.
---
### Summary Table
| Scenario | Service Tax Applicable? | Notes |
| --------------------------------------------------------- | ----------------------- | ----------------------------------------------------- |
| Electricity supplied at actual cost, no markup | No | Reimbursement only, not a service |
| Electricity supplied with markup/profit | Yes | Part of renting service, service tax applies on total |
| Electricity supplied separately, no other taxable service | No | Pure sale of goods (outside service tax) |
| Electricity supplied as part of taxable renting service | Yes | Service tax on entire amount charged |
---
### What Courts and Authorities Say?
* The **Supreme Court** clarifies electricity as goods — no service tax on pure sale of electricity.
* **Service Tax Dept** insists on levy if there is markup or bundled in taxable service.
* **High Courts** differ but mostly hold that if it’s part of renting service and charged with markup, service tax applies.
---
### Practical Advice
* If you are landlord charging electricity separately at **actual cost** without markup, no service tax.
* If you add **any markup or profit**, treat electricity as part of renting service and pay service tax on total.
* Keep clear records to show whether it is reimbursement or sale/service.
* If you want to avoid service tax, best is to bill electricity as a pure pass-through cost without markup.
---
If you want, I can help draft an explanation letter or advise on invoicing formats to support your case.
---
Would you like that? Or need help with anything else?
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