The West Bengal Authority for Advance Ruling (AAR) has held that electricity charges recovered by a commercial building maintenance company from occupants at actual cost, without any markup or profit, will not attract Goods and Services Tax (GST).

 

The ruling was pronounced on September 1 in the case of DH Maintenance Ltd, which provides common-area maintenance and facility management services for a commercial building in Kolkata.

 

DH Maintenance pays electricity charges to distribution company CESC Ltd for electricity consumed in the building and recovers the cost from the occupants. The company sought clarity on whether such recovery could be treated as reimbursement in the capacity of a “pure agent” and excluded from the value of its maintenance services for GST purposes.

  

A pure agent under GST is a person who incurs costs or expenses on behalf of a client while providing a main service, and later claims reimbursement for the exact amount spent without adding any markup.

 

Under the proposed billing arrangement, electricity used in individual offices for normal consumption and heating, ventilation and air-conditioning (HVAC) would be charged according to sub-meter readings. The electricity cost for common areas would be distributed among the occupants based on the super-built-up area of their respective units. The company would recover the electricity cost without adding any profit or markup.

 

The issue was significant because electricity supplied along with maintenance services would ordinarily form part of a composite supply. In such a case, the GST rate applicable to the principal maintenance service would apply to the electricity component as well.

 

However, the AAR relied on Circular No. 206/18/2023-GST dated October 31, 2023. The circular provides that where electricity is supplied along with renting of immovable property or maintenance services, it generally forms part of a composite supply. But where electricity is recovered on an actual basis — at the same amount charged by the electricity distribution company — the supplier is deemed to be acting as a pure agent for the electricity supply.

 

Interestingly, the AAR observed that DH Maintenance did not strictly satisfy the normal pure-agent test. It noted that electricity was an integral part of the maintenance and management services provided by the company.

 

The authority, however, said the specific deeming provision in the 2023 circular would apply. Since DH Maintenance proposed to charge occupants the same amount as charged by CESC, without any markup or profit, the electricity recovery would be treated as pure-agent recovery.

 

The AAR also extended this treatment to electricity used in common areas. The balance amount of the CESC bill, after accounting for electricity consumed in individual offices and HVAC, would be apportioned among occupants according to their respective areas.

 

“This ruling reinstates the position under the Circular on the taxability of electricity charges recovered on a metered basis, i.e. HVAC and non-HVAC, and aligns with the position adopted by most industry players. A key aspect, however, is the ruling’s finding that electricity charges relating to common area are also non-taxable as recovered in the capacity of pure agent,” said Harpreet Singh, partner, Indirect Tax, Deloitte.

 

“While this is a welcome position, it remains contentious and is likely to be challenged by the tax authorities before the Appellate Authority,” he added.

 

For January 2026, the CESC bill was Rs 20.19 lakh for 196,520 kilowatt-hours (kWh) of consumption. Of this, Rs 10.24 lakh related to non-HVAC consumption in individual offices, Rs 6.35 lakh to HVAC consumption and Rs 3.61 lakh to common-area consumption.

 

The Revenue had pointed out that similar issues had arisen in earlier adjudication proceedings for 2018-19 and 2019-20. The AAR, however, distinguished those proceedings, saying they related to the company’s existing billing pattern, whereas the present ruling concerned the proposed billing pattern.

 

The AAR ultimately ruled that electricity charges recovered at actual cost, including charges relating to HVAC and common-area consumption, would be excluded from the value of the company’s supply and would not attract GST under the proposed arrangement.