In re Mody Education Foundation (GST AAAR Rajasthan)
Rajasthan Authority for Advance Ruling (AAR) has observed that the Service provided by appellant to students of MUST is a mixed supply under section 2(74) and not a composite supply under Section 2 (30). Further AAR has considered ‘Room’ as a ‘Unit of Accommodation’ for exemption upto Rs.1000/- per day and passed Ruling that the applicant would not be eligible for exemption under entry no. 14 of the Notification No. 12/2017 Central Tax (Rate), dated 28.06.2017. Aggrieved by the ruling the appellant filed present appeal before this forum.
Before examining the contention of the appellant it is imperative to go through the relevant provision of the CGST Act which defines the term Composite supply and Mixed supply. We find that as per Section 2(30) of CGST Act, 2017 “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;
In the above illustration, it is obvious that the packing material or the insurance cannot be supplied separately if there is no transportation of goods. As such, for the transportation of goods, the supply of packing material and the insurance is a composite supply, wherein the supply of goods is a principal supply. Accordingly, from the above definition, we are of the view that a composite supply can be determined on the basis of following 3 main criteria:-
(i) Supply of two or more goods or services or combination of both.
(ii) The supply is made in a natural bundle, Le. the goods and/or services are provided as a combination in the natural course of business.
(iii) The individual items (goods and/or services) cannot be supplied separately.
We further note that as per Section 2(74) of the CGST Act the term “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.
From the definition it emerges that a mixed supply is two or more independent products or services which are offered together as a bundle but can also be supplied separately.
We find that in the instant case the appellant is supplying services of food along with Hostel Accommodation service. In view of the discussion of above paras 8.4 and 8.5, we are of the view that supply of food with Hostel Accommodation service is not naturally bundled in normal course of business. It has been also informed by the appellant that a cafeteria (canteen) has been provided for day scholars, in which they can optionally take snacks and F&B as per their choice. The above said facts itself proves that food service is an independent service and can be supplied separately in the appellants own case. It is obvious that a person can live in the hostel without availing other service like food but to make ones stay more comfortable, the said ancillary services are availed by him. We find that the Rajasthan Authority for Advance Ruling has held that naturally bundled services are those services wherein one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. If current nature of supply of services is tested based on above factors, it can be ascertained that the provision of hostel accommodation could be a principal supply but ancillary service food cannot be said to arise naturally with the principal service of hostel accommodation and therefore are not bundled naturally with principal supply. We find that in the present case, others services being provided by the Appellant are not naturally bundled or ancillary to Hostel service as the inhabitants of Hostel seats can avail these services from any other source. In fact the inhabitants have been restricted from sourcing these other services from any other person. Consequently, the inhabitants have to avail these services from the Appellant. In such situations we are of the view that the other services are not ancillary to or bundled with the Hostel service.
We further note that West Bengal Authority for Advance Ruling in the case of Sarj Educational Centre [2019 (22) G.S.T.L, 315 (A.A.R. – GST)] involving similar facts and circumstances, wherein the applicant was engaged in supplying food and other services and it was held that they are not naturally bundled with the lodging service. All these components are independent of each other. The said ruling has been upheld by the Appellate Authority for Advance Ruling of West Bengal [2019 (27) G.S.T.L. 131 (App. AAR – GST)]. Therefore, we held that supply of hostel accommodation along with food is not a composite supply but it is a mixed supply.
Further the appellant has contested that in this case, the Unit of Accommodation is a ‘Hostel Seat’. Per unit of accommodation has not been defined in GST anywhere. There is many ways to fix the tariff in the business of accommodation service. Authority for Advance Ruling has considered room as the unit of accommodation. In this regard we have contrary view as legislature has used the term ‘per unit of accommodation’ instead of other criteria. The word ‘per unit of accommodation’ should be understood as per general practice adopted by large number of service provider in similar business model. In hotels, generally it fixes per room, per suit whereas in hostels, inns and dharmshalas, it fixes per room, per bed, per seat and per person. From the facts mentioned by the appellant, it would emerge that they provides accommodation service in hostel and fix the tariff on the basis of hostel seat, therefore, we agreed the contention of appellant and finds that hostel seat should be considered as a unit of accommodation.
Further, as per Section 8 (b) of the CGST Act, 2017 as below:-
“8. (b) a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.”
As provided in Section 8 of the CGST Act, 2017, in case of mixed supply of accommodation and food, highest rate of both will be applicable.
Read AAR Order:- GST payable on Hostel Services by Mody Education Foundation: AAR
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, RAJASTHAN
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’) by M/s Mody Education Foundation, NH 11, Lakshmangarh, Sikar – 332311 (hereinafter also referred to as ‘the appellant’) against the Advance Ruling No. RAJ/AAR/2021-22/02 dated 07.07.2021
BRIEF FACTS OF THE CASE
3. M/s Mody Education Foundation, NH 11, Lakshmangarh, Sikar – 332311 (herein after referred as (MEF/Appellant) has filed appeal against Ruling issued by Authority for Advance Ruling Rajasthan vide order No. RAJ/AAR/2001-22/02 dated 07.07.2021. The Appellant has submitted appeal in this office in hard copy and also enclosed acknowledgement in respect of e-filing of appeal on 06.08.2021 on online common portal. Fee of CGST Rs. 10000/- and SGST Rs. 10000/- have been paid vide Challan dated 06.08.2021. Brief facts of the case are as under:-
3.1 The Appellant is a Society registered under Societies registration Act, I860 with Registration No. S-10560/. The Appellant is registered as a Public Charitable Trust u/s 12AA of the Income Tax Act, 1961 having registration no. DLI(C)(I_1178).The Appellant is running a CBSE affiliated school from class 3rd to 12th at NH-11, Lakshmangarh, Distt. Sikar (Rajasthan)-332311 and registered under GST law having GSTIN 08AABTM0215E1Z5. The appellant is also the sponsoring body of Mody University of Science & Technology (hereinafter referred as MUST). Appellant is considering a proposal to allow the students of MUST to use the ‘Hostel Accommodation’ in its surplus infrastructure which includes Hostel Seat for the students along with serving meals (Food & Beverages) including Breakfast, Lunch and Dinner. Appellant will directly charge ‘Boarding and Lodging Charges’ from the students of MUST. ‘Boarding and Lodging charges’ shall be based on the type of ‘Hostel Seat’ opted by the student of MUST. Following four categories of Hostel Seats are being offered by appellant for the students of MUST:-
i) Hostel Seat in a Single Occupancy A.C. Room;
ii) Hostel Seat in a Single Occupancy Non A.C. Room;
iii) Hostel Seat in a Double Occupancy A. C. Room;
iv) Hostel Seat in a Double Occupancy Non A. C. Room;
3.2 That Key Features of the Hostel Accommodation Service provided by appellant to students of MUST:-
i) The principal service of ‘Accommodation’ and ancillary service of serving Meals (Food & Beverages) including Breakfast, Lunch and Dinner, shall be delivered as a single Package under ‘Hostel Accommodation Service’;
ii) The charges of Accommodation and Meals (F&B) are inseparable;
iii) The student will pay a single price or same amount, for the entire package, irrespective of the quantum or amount of each service in the package that they actually use or receive;
iv) Accommodation and Meals (Breakfast, Lunch and Dinner) covered under the ‘Hostel Accommodation Services’ are otherwise not available separately;
v) Being an education institution, the students are living in a closed compound with restriction on movement outside the institute. The Girls who are staying and utilizing the Hostel Accommodation Services, have to essentially eat their meals (F&B) inside the campus as part of the package and the student do not have an option to avail them partially or separately. Further, in absence of meals (F&B) facility along with the package, it is not possible for the students to avail the Hostel Accommodation and the entire package becomes useless for the students;
vi) The amount to be charged by appellant from the students of MUST for a ‘Hostel Seat’ shall be less than Rs.1000/- per day. The Boarding & Lodging Charges shall be collected for the entire year either as onetime payment or In Installments,
4. Appellant filed an application before the Rajasthan Authority for Advance Ruling (AAR) to seek an Advance Ruling “Whether Hostel facility which includes Lodging and Boarding service provided by appellant to the students of MUST having value of service upto Rs.1000/- per day would be eligible for exemption under entry no. 14 of the notification 12/2017 CTR Dt. 28-06-2017?”
5. Rajasthan Authority for Advance Ruling (AAR) has observed that the Service provided by appellant to students of MUST is a mixed supply under section 2(74) and not a composite supply under Section 2 (30). Further AAR has considered ‘Room’ as a ‘Unit of Accommodation’ for exemption upto Rs.1000/- per day and passed Ruling that the applicant would not be eligible for exemption under entry no. 14 of the Notification No. 12/2017 Central Tax (Rate), dated 28.06.2017.
6. Aggrieved by the ruling the appellant filed present appeal before this forum on 06.08.2021 on online portal and in hardcopy on 09.08.2021 on following grounds:
6.1 Appellant submitted that Advance Ruling No. RAJ/AAR/2021-22/02 dated 07/07/2021, is bad in law, as well as on the facts of the Case. Legal Provisions and Clarifications related to Hostel Accommodation Service and its natural bundling with the serving of Meals (F&B) to students, in the ordinary course of business, are as below:
6.1.1 In respect of the classification of the Hostel Accommodation Service provided by Trusts to students covered within the definition of charitable activities, CBIC has clarified at S. No. 1 of Circular No. 32/06/2018-GST dated 12-2-2018 as below:-
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