In re Kalani Infrastructure Private Limited (GST AAAR Rajasthan)
The appellant is supplying various services like supply of food, TV in dining hall, playroom, gym, housekeeping of entire hostel premises, room cleaning and washing/ dry-cleaning of bed sheets and linen of rooms along with hostel acoomodation service. AAAR is of the view that supply of various other services with hostel accomodation service is not naturally bundled in normal course of business. Each service is an independant service and can be supplied separately.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING,RAJASTHAN
(Proceedings under Section 101 of the Central Goods and Services Tax Act, 2017 read with Section 101 of the Rajasthan Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the Central GST Act, 2017 and the Rajasthan GST Act, 2017 are same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central GST Act, 2017 would also mean a reference to the same provisions under Rajasthan GST Act, 2017.
2. The present appeal has been filed under Section 100 of the Central GST Act, 2017 (hereinafter also referred to as ‘the CGST Act’) read with Section 100 of the Rajasthan GST Act, 2017(hereinafter also referred to as ‘the RGST Act’) on 13.2.2020 by M/s Kalani Infrastructure Private Limited, A-14-A, Road No. 1, Indraprastha Industrial Area, Kota (Raj.) (hereinafter referred to as appellants) against Advance Ruling No. Raj/AAR/2019-20/30 dated 09.01.2020
3. Brief Facts of the case
3.1 M/s Kalani Infrastructure Pvt. Ltd. (hereinafter referred to as appellants) is registered under GST law with GST1N 08AACCK1540L1ZK, having their registered address at A-14-A, Road No. 1, Indraprastha Industrial Area, Kota (Raj.). M/s Fortune Icon, a unit of M/s Kalani Infrastructure Pvt. Ltd. is running a Hostel for residential accommodation of students. The appellant wish to charge a consolidated amount of Rs. 17,000/- per month from the students against provision of hostel accommodation for residence purposes which would also include ancillary supply of food with certain other facilities.
3.2 It has been submitted that primarily the students approach for having accommodation facility and only when accommodation facility gets ensured, need for food and other allied facilities arises. Neither the appellants wish to charge any separate amount for supply of food or other general facilities from the students nor there is any bifurcation of the charges for residential accommodation along with food and other facilities provided to the students. Further, there would be no option provided to the students to opt for hostel accommodation without food or other facility. All students would pay a consolidated amount of Rs.17,000/- per month whether or not they use the food or any other facility. Similarly, there is no option for any person to take only food or any other facility without being resident of hostel.
3.3 Since the hostel charges recovered from the student per day does not exceed Rs.1000/-, the activity of hostel accommodation is exempt from GST under Sr. No. 14 of the CGST (Rate)Notification No. 12/2017 dated 28.06.2017 as amended read with CBEC Circular No. 32/06/2018-GST, dated 12.02.2018. However, there is no specific clarification on applicability of exemption on incidental food facility if provided along with principal supply of hostel accommodation especially when no separate charge is recovered from the students.
3.4 In the above background, an application was filed by them before Rajasthan Authority of Advance Ruling to determine classification and taxability of hostel accommodation where food and other general facilities are also provided, and no separate amount is charged from the students for the same. Question which the Advance Ruling was sought, are as under:-
(a) Whether provision of hostel accommodation along with food facility to the students wherein consolidated amount is charged from the students is a composite supply where principal supply is that of rent of hostel accommodation?
(b) Whether the entire charge recovered from the students would be exempt from GST under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 dated 28.06.2017 as amended if the charges per day is less than Rs.1000/-
(c) To determine the taxability on supply of hostel accommodation along with food facility.
(d) To determine the appropriate classification and applicable rate of GST on supply of hostel accommodation along with food facility.
3.5 However, the Authority did not find favour and issued the Advance Ruling holding that:-
(a) The provision of hostel accommodation along with food facility, Play Room, Gym, Housekeeping, Room Cleaning to the students wherein consolidated amount is charged from the students is Mixed Supply.
(b) The entire charges recovered from the students are not exempted from GST under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 dated 28.06.2017.
(c) As various services provided by the applicant constitute a Mixed Supply, the rate of GST on whole supply will be the rate of supply which attracts highest rate of GST. As the highest rate amongst services provided is 18%, accordingly, rate of GST on whole supply will be 18% (SGST 9% + CGST 9%).
3.6 Aggrieved by the aforesaid Ruling above, the appellant has preferred the present appeal before this forum.
GROUNDS OF APPEAL
4. The appellant in its Appeal has, inter-alia, mentioned the following grounds of Appeal:
4.1 The provision of hostel accommodation, food with other general facilities shall be treated as composite supply, where principal supply is renting of accommodation
4.1.1 In the present case, the Appellants are running hostel accommodation for students in Kota. The appellants principally provide hostel accommodation alongwith incidental supply of food to all students wherein a consolidated amount of Rs.17,000/- per month is charged from the students. There is no system wherein student is provided with a choice to opt for hostel accommodation without incidental supply of food. In other words, neither there is any choice with the student to opt for standalone hostel accommodation without opting for supply of food nor there is any bifurcation of charges for food provided to the students.
4.1.2 Further, following additional amenities are also available which are part and parcel of the hostel accommodation. No separate charge is recovered from the students for the same:
— TV in dining hall
— Playroom
— Gym
— Housekeeping of entire hostel premises
— Room cleaning
— Washing/ dry-cleaning of bed sheets & linen of rooms provided by owner
None of these amenities are mandatory. These are provided as complimentary amenities and there is no obligation as such if any of these are discontinued. The hostel accommodation is inbuilt with above facilities.
4.1.3 It is submitted that there is no dispute to the fact that the provision of hostel accommodation and food falls under ‘Supply’ as defined under Section 9 of the CGST Act, 2017. Here the reference of CGST Act, 2017 may be treated as reference to State GST, UTGST and IGST Act also. The food is provided as an integral part and naturally bundled with the hostel accommodation and no separate amount is charged from the students. The provision of services comprises two or more components wherein principal
activity is of the rental services of hostel accommodation shall be treated as Composite Supply.
4.1.4 It is pertinent to refer to the concept of ‘composite supply provided in GST law. Section 2(30) of CGST Act, 2017 defines ‘composite supply’ as under:
“Composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
Illustration- Where goods are packed and transported with insurance, the supply of goods, packing materials, transport and insurance is a composite supply and supply of goods is a principal supply;
4.1.5 Perusal of the above definition implies that a supply of goods and/or services will be treated as composite supply if it fulfills the following three criteria:-
(a) Supply of two or more goods and services together.
(b) Goods or services are naturally bundled, i.e. they are provided together in the normal course of business, and
(c) Value of each supply is not identifiable separately.
Further, it shows that there is no concept whether such incidental supplies results into any better enjoyment of main supply or that whether same are available independently also in the market.
4.1.6 A perusal of the example given in statute for composite supply shows that when goods are supplied along with transportation, insurance and packing material are incidental supplies whereas supply of goods is principal supply. It is common knowledge that there can be supply of goods at doorstep of supplier without any transportation or without any transit insurance or that supply of transportation service or insurance service can also be independently and commonly available outside or that quality of supply of goods would not change whether transportation and insurance is inclusive in the scope of supplier or not. Irrespective of above it is covered by composite supply of goods where the packing material, transportation, insurance is considered as incidental. The logic behind it is that basically the customer approached for supply of goods and therefore, that is the principal supply and other facilities are incidental to the principal supply hence, an example of composite supply.
4.1.7 As against this the mixed supply is defined under section 2(74) which read as under:
2(74) “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.
Illustration – A supply of a package consisting of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices when supplied for a single price is a mixed supply. Each of these items can be supplied separately and is not dependent on any other. It shall not be a mixed supply if these items are supplied separately;
4.1.8 Perusal of definition of mixed supply shows that here also two or more individual supply of goods or services are made in conjunction with each other for a single price where such supply is not composite supply.
The illustration of mixed supply given in statute as reproduced above shows that in case supply consists of canned foods, sweets, chocolates, cakes, dry fruits, aerated drinks and fruit juices etc. and single price is charged then the principle of principal supply and incidental supply does not apply to these types of supplies as all supplies are independent of each other.
4.1.9 It is therefore submitted that the distinctive feature between ‘composite supply’ and ‘mixed supply’ is not merely that incidental supplies can also be available separately but that in case of mixed supply all components of supply are not dependent on any other and all are principal in nature and logic of principal supply and incidental supply cannot be applied to the same, where as in case of ‘composite supply’ incidental supplies are dependent on ‘principal supply’.
4.1.10 The other examples of composite supply commonly available in the business environment are as under:
a) Hotel principally provides room but it has to keep the housekeeping of hotel and room in tidy condition, all bed sheets and linen of room needs to be washed /dry-cleaned, TVs are provided in common areas as well as in rooms, breakfast, gym rooms, swimming pool are also provided as incidental to stay etc. There can be situations where independent breakfast may also be available in the same hotel still it is considered as ‘composite supply’ and that the entire supply is considered as that of supply of hotel accommodation and accordingly classified and taxed. It is never argued that gym facility can be taken outside also or that swimming pool facility can be available outside also or that accommodation facility can be provided without gym, IV, laundry, swimming pool also.
b) Medical treatment is provided in many hospitals where in many cases the consideration includes rooms for patients as well as attendants, housekeeping of entire premises & rooms, laundry of bed sheets, linen of rooms, supply of food for patients, TV in rooms and common area etc. Here also medical services are considered as principal supply because that is the purpose for which a patient comes to hospital and all other are incidental supplies/facilities. Even though incidental supplies are individually liable to GST, but medical services as a whole are not made liable to GST being principal supply.
This is inspite of the fact that in many cases the same hospital or other hospitals may not provide medical services under the single package but may be charging separately for doctor services, medicines, rooms etc. and inspite of that it is a settled law that where all these are part of a package then it is an example of composite supply where medical services are principal supply and no GST is payable on entire package.
c) Airlines are providing air travel services along with certain free refreshment/meals during transit and also provides in flight entertainment services on TV Screen etc., keeps aeroplane neat and clean through housekeeping service and also washes and dry-cleaning seat covers etc. These are undisputedly considered as a composite supply where principal supply is that of travel by air and accordingly classified and taxed.
This is inspite of the fact that many airlines are not supplying any snacks/refreshments as a part of package but charges separately for such supply of food. However, those airlines where snacks/ meals are part of ticket price, it is considered as composite supply of air travel service because basically the passenger approaches airline for air travel service and rest are only incidental.
Above criteria and principles can be squarely applied in the present case also where the student comes to hostel principally for availing accommodation service and for providing such service in today’s time, the entire premises are to be kept clean, bed sheet and linen in the room are to be washed/ dry-cleaned, general facilities of TV, Gym and playroom etc. are provided and food facility is also provided. However, the fact remains that student principally wishes to take hostel accommodation and rest are incidental. Hence, a perfect example of composite supply where principal supply is that of accommodation service. This situation is very close to the services of hotel accommodation, hospital, etc. and all elements are same and therefore, same principal needs to be applied. There is no cogent reason to treat hostel accommodation service differently so far as concept of composite and mixed supply is concerned.
4.1.11 In the present case, food and other facilities are provided along with principal activity of hostel accommodation and they cannot be separated in normal course of the business. Bundling has not been defined in GST law; hence, reference can be taken from CBEC Education Guide issued after introduction of negative list in erstwhile service tax regime when concept of bundling was introduced for the first time. The relevant extracts of the Guide are reproduced below: –
“Bundled service’ means a bundle of provision of various services where in an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of ‘bundled service’ would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different”
The rule is – ‘If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’
4.1.12 Further, CBIC has elaborated in its E-flyer issued on ‘Composite and mixed supplies’ after introduction of GST as under:
‘Hotel provides a 4-D/3-N package with the facility of breakfast. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation gives the bundle the essential character and would, therefore, be treated as service of providing hotel accommodation.
Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below –
