The West Bengal Authority for Advance Ruling (WBAAR) has held that electricity charges recovered from commercial building occupants at actual cost, without any markup or profit element, can be treated as recovery in the capacity of a “pure agent” and excluded from the value of taxable supply for GST purposes.
The applicant provides common area maintenance and facility management services in respect of a commercial building known as “Harinath Heritage” at 16, Strand Road, Kolkata. The applicant also pays electricity charges to CESC Limited for electricity consumed in the building and proposed to recover the actual electricity expenditure from the respective unit holders.
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The proposed recovery was to be made without adding any profit, markup or other additional consideration. Electricity consumption was separately identifiable between normal electricity consumption in individual offices, electricity consumed for HVAC operations and electricity consumed in common areas.
For January 2026, for example, the CESC bill amounted to ₹20,19,811 for consumption of 196,520 KWH. The applicant’s working identified approximately ₹10.24 lakh towards non-HVAC electricity consumption, ₹6.35 lakh towards HVAC consumption and ₹3.61 lakh towards common-area consumption.
The applicant approached the Authority to determine whether such recovery could be treated as reimbursement in the capacity of a pure agent and whether GST would consequently be payable.
Proposed billing mechanism
The applicant explained that electricity consumption in the building could broadly be divided into three categories.
The first category consisted of electricity consumed in individual offices other than HVAC consumption, for which sub-meters had been installed.
The second category consisted of electricity specifically consumed for HVAC operations in individual offices, which was also measured through separate sub-meters.
The third category related to electricity consumed in the common areas of the commercial building.
Under the proposed billing pattern, the applicant intended to recover electricity charges for normal consumption and HVAC consumption at the same unit rate charged by CESC. For common-area electricity, the total amount payable to CESC would be reduced by the amounts recovered for individual normal and HVAC consumption. The balance would then be distributed among unit holders based on the super-built-up area of their respective premises.
A separate Common Area Maintenance (CAM) charge would also be recovered at an agreed rate on a per-unit-area basis.
Applicant relied on Circular No. 206/18/2023-GST
A central issue before the Authority was the interpretation of Circular No. 206/18/2023-GST dated October 31, 2023, issued by the Ministry of Finance, Department of Revenue, Tax Research Unit.
The circular clarifies the GST treatment of electricity supplied by real estate companies, malls, airport operators and similar entities to their lessees or occupants.
The circular generally provides that where electricity is supplied along with renting of immovable property and/or maintenance of premises, the electricity supply forms part of a composite supply, with renting or maintenance constituting the principal supply. Consequently, merely raising a separate electricity bill does not by itself separate the electricity supply from the composite supply.
However, the circular also provides an important exception. Where electricity is supplied by real estate owners, RWAs, real estate developers and similar entities as a pure agent, it does not form part of the value of their supply.
Further, where electricity charges are recovered on an actual basis — meaning that the same amount is charged to occupants as is charged by the State Electricity Board or DISCOM — the entity is deemed to be acting as a pure agent for that electricity supply.
Revenue initially supported the actual-cost mechanism
The Revenue also relied upon Circular No. 206/18/2023-GST and accepted that where electricity charges are recovered from occupants on an actual basis, without any difference between the amount recovered and the amount charged by the electricity distribution company, the electricity charges would not form part of the value of the applicant’s supply.
The Revenue, however, clarified that any value added during the recovery process would become part of the composite supply and would be taxable accordingly.
Earlier adjudication proceedings raised an issue
An important complication arose because the Revenue informed the Authority that the same applicant had already faced adjudication proceedings concerning electricity recovery for earlier periods, namely 2018-19 and 2019-20.
The adjudicating authority in those proceedings had taken a different view and had treated the electricity supply as part of a composite supply involving maintenance and other services. The earlier orders had reasoned that electricity supplied along with maintenance or renting was ancillary to the principal supply and therefore taxable at the rate applicable to the principal supply.
The Revenue therefore questioned whether the advance ruling application itself should be entertained in light of those proceedings.
WBAAR distinguishes earlier billing pattern from proposed billing pattern
The Authority, however, found a material distinction between the earlier adjudication and the question placed before it.
According to the Authority, the earlier adjudication proceedings related to the existing billing pattern, whereas the advance ruling application concerned the applicant’s proposed new billing mechanism.
Under the existing system, three bills were issued to an occupant: one for non-HVAC electricity consumption, another for HVAC electricity consumption and a third for maintenance, which included common-area electricity and common facilities. The applicant also charged transmission and distribution losses at 5% on consumed units.
The proposed system was materially different. It contemplated recovery of electricity at the exact CESC rate for normal and HVAC consumption, allocation of common-area electricity on a proportionate basis, and a separate CAM charge.
The Authority therefore concluded that the subject matter of the earlier adjudication and the present advance ruling was not identical and proceeded to examine the proposed arrangement.
Electricity remains ancillary to maintenance, but pure-agent exception applies
The Authority observed that electricity was an integral part of the maintenance and management services undertaken by the applicant. The applicant’s Memorandum of Association itself contemplated maintenance and management of common portions, services and facilities, including electrical systems and connections.
Consequently, the Authority agreed that the general rule contained in Circular No. 206/18/2023-GST would apply where electricity is supplied as an ancillary component of maintenance services. In such circumstances, even separate billing would not automatically prevent the supplies from being treated as a composite supply.
However, the Authority then examined the specific exception contained in Clause 3.3 of the circular, dealing with pure-agent arrangements.
Rule 33 of CGST Rules becomes crucial
The Authority examined the concept of a pure agent under Rule 33 of the CGST Rules, 2017.
Rule 33 permits expenditure or costs incurred by a supplier as a pure agent of the recipient to be excluded from the value of supply when the prescribed conditions are satisfied.
Among the requirements are that the supplier must act as a pure agent when making payment to a third party on the recipient’s authorisation, the payment must be separately indicated in the invoice, and the third-party supply procured as a pure agent must be in addition to the supplier’s own services.
The explanation to Rule 33 further requires, among other things, a contractual arrangement under which the supplier acts as a pure agent, absence of title over the goods or services procured as pure agent, non-use of those goods or services for the supplier’s own interest and recovery of only the actual amount incurred.
Initial difficulty: applicant failed the conventional pure-agent test
Interestingly, the Authority initially found that the applicant did not satisfy the conventional Rule 33 pure-agent test on the factual matrix presented.
The CESC bill was not raised in the applicant’s name, meaning there was no question of the applicant holding title to the electricity services received from CESC. However, the Authority initially noted that there was no contractual agreement between the applicant and the electricity end-consumers under which the applicant would act as their pure agent.
During the hearing, the applicant produced a specimen agreement authorising it to act as pure agent of the unit owner when paying the DISCOM or other electricity supplier on behalf of the unit owner. Nevertheless, because electricity formed part of the broader services the applicant was contractually required to provide, the Authority observed that the applicant failed the conventional pure-agent test under Rule 33.
Circular’s deeming provision changes the outcome
The Authority then turned to the second sentence of Clause 3.3 of Circular No. 206/18/2023-GST.
This provision states that where such entities charge electricity on an actual basis — i.e. charge occupants the same amount as charged by the electricity board or DISCOM — they are deemed to be acting as pure agents.
The Authority specifically noted the use of the expression “deemed” and treated it as a deeming provision.
The Authority found that the applicant’s proposed billing mechanism fell squarely within this provision.
The applicant proposed to recover from each unit holder the same electricity rate charged by CESC based on the sub-metered consumption of normal and HVAC electricity. The balance relating to common-area electricity would be apportioned according to the area enjoyed by the unit holder. Importantly, no markup or profit element would be added. The electricity charges would also be separately identified alongside the CAM charge.
Key finding: actual recovery without markup qualifies for pure-agent treatment
The WBAAR ultimately held that the applicant’s recovery of electricity charges at actual cost, based on consumption and without markup, including electricity attributable to HVAC operations and common-area consumption, could be deemed to be recovery in the capacity of a pure agent under the CGST Act read with Circular No. 206/18/2023-GST.
Consequently, the electricity amount so recovered would be excluded from the total value of the applicant’s supply, and GST would not be levied on that excluded portion.
Final ruling
The Authority answered the applicant’s question in the affirmative.
It ruled that recovery of electricity charges at actual cost based on consumption, as charged by the electricity distribution company and without any markup, including electricity attributable to HVAC operations and common-area consumption, as explained in the application, can be deemed to constitute recovery in the capacity of a pure agent under the CGST Act read with the relevant provisions of Circular No. 206/18/2023-GST.
GST will not be levied on such recovered electricity charges.
What the ruling means for commercial building operators
The ruling provides important guidance on electricity recovery arrangements in commercial premises.
The decision makes clear that separate billing alone is not sufficient to take electricity outside the GST value of maintenance services. The general principle remains that electricity supplied as an ancillary component of maintenance or renting can form part of a composite supply.
The significant exception is where the electricity recovery falls within the mechanism contemplated by Clause 3.3 of Circular No. 206/18/2023-GST.
For such treatment, the factual arrangement becomes critical. The electricity amount should correspond to the amount charged by the DISCOM, there should be no markup or profit, consumption should be appropriately identifiable or allocated, and the billing should clearly demonstrate the electricity recovery separately from the supplier’s own maintenance charges.
Common-area electricity also covered
A particularly important aspect of the ruling is that the pure-agent treatment was not restricted to electricity directly consumed inside individual units.
The Authority expressly accepted the proposed mechanism covering common-area electricity consumption, where the balance amount payable to CESC after accounting for individual normal and HVAC consumption would be apportioned among unit holders according to their respective super-built-up areas.
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