CA Surbhi Nahata
As the name suggests, ‘bundled services’ are the combination of two or more services. i.e. combination of provision of various services wherein provision of one service is combined with an element of provision of any other service or services.
There are three important rules to consider in understanding the concept of these services:
1. Reference of main service shall not include the reference of auxiliary service. For example: Toll charges. “Provision of access to any road or bridge on payment of toll” is a specified entry in the negative list of the Act. Any service provided in relation to collection of tolls or for security of a toll road would be in the nature of service used for provided the main service (i.e. Provision of access to any road or bridge on payment of toll) and so will not be entitled to the benefit of the negative list entry.
One of the other example is: Transportation of goods on an inland waterway is covered under negative list and hence not taxable, but any service provided by an agent to book such transportation is an auxiliary service and should not considered with negative list entry or should not be mixed with the main service.
2. If the service is capable of differential treatment as per its description, then the most specific description should be preferred over general description: For example: Services of a real estate agent. The services provided by a real estate agent are in the nature of intermediary services relating to immovable property. Now the dispute is that, that as per the Place of Provision of Service Rule, 2012 , the place of provision of services provided in relation to immovable property is the location of the immovable property, but as per Rule 9 , the place of provision of intermediary service is where the intermediary is situated. So should we consider the place of immovable property or location of the intermediary for the place of provision of service? The answer will be decided on the basis of most specific description i.e. service related to immovable property which is more specific then intermediary services (Refer Rule 5).Therefore, the place of provision of service will be location of immovable property.
3. Concept of natural bundle:
a) What are natural bundle and how to tax them? : Basically the nature of the various services in a bundle helps us in determining whether the services are bundled in the ordinary course of the business. There is no particular definition to determine the concept of natural bundle. Natural bundle has the characteristics where one of the services is the main service and the other services combined with such service are incidental or ancillary services which helps in better enjoyment of the main service. There are several other factors to determine if various services are naturally bundled or not- like if there is a single price for all the combined services or the combined services are advertised as a single package or the combined services cannot be separated. Important point to consider is that the different elements are integral to one overall package/service i.e. if one or more service is removed then the nature of the package would be affected. Chargeability of service tax will be with respect to the main service.
Let’s look at some examples: A hotel provides accommodation with the facility of breakfast. Now this is the natural bundling of services in the ordinary course of the business. Here the main service is hotel accommodation and providing of breakfast is just incidental to the main service. Therefore, taxability of bundled service will be determined on the basis of service which gives the bundle its essential character i.e. service of hotel accommodation (Note that there is 40% abatement in case of hotel accommodation services and so service tax would be charged on 60% of the value).
Q) What about a hotel arranging conference of 50 delegates on a package which includes accommodation, breakfast, tea/coffee during the conference, availability of the conference rooms, business center etc.?
Ans) Now here if these services bundled together are performed individually then they have different treatment and different rates of tax applicable. So none of the individual constituents are able to provide the essential character or we cannot find one main service, however if the service is described as ‘convention service’ then it is able to capture the entire essence of the package. Thus the service may be judged as convention service and chargeable to full rate. Note that it is fully justifiable for the hotel to charge individually for the services as long as there is no attempt to offload the value of one service on to another service that is chargeable at a concessional rate.
b) What about services which are not naturally bundled? : If the various elements of service are not naturally bundled in the ordinary course of the business ( for convenience let’s call it artificial bundle), then it shall be treated as provision of the single service which results in highest liability of service tax.
Example: There are two floor in the house out of which ground floor is given on rent for commercial purpose and first floor is given on rent for residential use. Such renting for two different purpose are definitely not naturally bundled in the ordinary course of the business. Here the renting for residential use is covered under negative list and hence no service tax on the same, but the one rented for commercial purpose attracts service tax liability. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. Since the renting for commercial use attracts highest tax liability so the entire bundle would be treated as renting of commercial property and taxed accordingly.
Q ) What about services of boarding school providing education, meals, accommodation, dry cleaning etc.?
Ans) Here the main service is providing education (imparting of education is the essential character in this case), other services are ancillary to the main service. Hence, treatment should be done as that of providing education. Note that providing of education is covered under negative list and hence exempted. Therefore, since it is a natural bundle so no service tax on the entire bundle i.e. no service tax on the services provided by the boarding school.
Q) What about construction services which also involves site formation services?
Ans) Again the main service here is that of construction. Site formation is just incidental to construction services. Therefore, it is a natural bundle and so should be taxed as per the rates applicable on construction services. Note that there is 75% abatement on construction service and hence only 25% of the value is liable to service tax (if some of the conditions are satisfied). Details of abatement related to construction services will be discussed in other articles.
Q) What about pandal shamiyana service , catering services or there combination?
Ans) Pandal shamiyana services are 100% taxable and catering services (outdoor catering) are 60% taxable in their individual capacity, but the combination of both have different treatment. Providing of pandal shamiyana and catering services can be naturally bundled in the ordinary course of the business as most of the service receivers prefer that combination, therefore there is separate abatement rate when the two are provided in combination. Since the combination is more specific entry than the two provided individually, there is no need to look for service having essential character or finding any main service. It is a natural bundle where abatement is 30%. Hence, service tax will be levied on 70% of the value of service.
Kindly note that there is no thumb rule or formula to determine whether a service is naturally bundled in the ordinary course of business or not. Each case is different and to be examined individually in the backdrop of several factors which have been discussed above.
Keep checking the latest amendments with respect to abatement and other rates.
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