Bishops Weed Food Crafts Pvt. Ltd. (GST AAR Karnataka)
1) Whether leasing of property for use as residence along with basic amenities would qualify, as composite supply under Section 2(30) of the Karnataka Goods and Services Tax Act, 2017?
‘Leasing of property for use as residence along with basic amenities’, in the instant case, is covered under accommodation services, as ruled in the preceding paras, falls under SAC 996311 and hence would qualify as composite supply under Section 2(30) of the CGST/KGST Act, 2017.
2) Whether renting of property by Applicant is covered under entry 12 of the exemption Notification 12/2017 (Rate) dated June 28, 2017?
Renting of property by Applicant is not covered under entry 12 of Notification 12/2017-Central Tax (Rate) dated 28.06.2017, as their services are covered under accommodation services falling under SAC 996311.
3) If the answer to 2 is negative, whether services by the Applicant are covered under entry 14 of the exemption Notification 12/2017 (Rate) dated June 28, 2017?
The exemption under entry 14 of Notification 12/2017-Central Tax (Rate) dated 28.06.2017 is available to the transaction of the applicant.
4) Whether leasing of property for residential subletting would be covered under the exemption for residential dwelling via notification 12/2017 (Rate) dated June 28, 2017?
Leasing of property for residential subletting would not be covered under the exemption for residential dwelling under entry 12 Notification 12/2017-Central Tax (Rate) dated 28.06.2017 as the two are different and individual transactions.
FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING,KARNATAKA
1. Bishops Weed Food Crafts Pvt. Ltd., (called as the ‘Applicant’ hereinafter) Sy.No.154, 77 Town Centre, Yemlur Main Road, Ammani Bellandur Khane village, Bangalore-560 037., having GSTIN number 29AAICB6302M1ZF, have filed an application for Advance Ruling under Section 97 of the CGST Act, 2017 & KGST Act, 2017 read with Rule 104 of CGST Rules 2017 & KGST Rules 2017, in FORM GST ARA-01, discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The Applicant is engaged in the business of provision of services by way of leasing of residential units for use as residence to Tenants. The applicant had sought advance Ruling in respect of the following questions:-
1. Whether leasing of property for use as residence along with basic amenities would qualify as composite supply under Section 2(30) of the Karnataka Goods and Services Tax Act, 2017.
2. Whether renting of property by Applicant is covered under entry 12 of the exemption Notification 12/2017 (Rate) dated June 28, 2017
3. If the answer to 2 is negative, whether services by the Applicant are covered under entry 14 of the exemption Notification 12/2017 (Rate) dated June 28, 2017
4. Whether leasing of property for residential subletting would be covered under the exemption for residential dwelling viaNotification 12/2017 (Rate) dated June 28, 2017
3. Admissibility of the application: The applicant, filed the instant application, in relation to classification of their services, applicability of a notification and determination of liability to pay tax on their services. Further the applicant has sought advance ruling in respect of the questions on the issues covered under Section 97(2)(a), (b) & (e) of the CGST Act 2017 and hence the application is admitted.
4. STATEMENT OF FACTS
4.1 The Applicant submitted that they are engaged in provision of services by way of leasing of residential units for use as residence to Tenants and furnished the following facts in relation to the questions on which advance rulings have been sought.-
a) The Applicant provides residential dwelling along with basic amenities such as maintenance, security and housekeeping. The services are generally provided as a comprehensive bundle and are not available as separate components.
b) The charges are fixed for each month. The Tenant does not have the option to select individual supplies from the bundle. The Tenant would pay a fixed monthly rent which would cover the charges for entire bundle as a whole.
4.2 In addition to the said services specified under para 4.1, the Applicant is also engaged in provision of services of leasing of residential units to other service providers who are engaged in subletting the residential unit for use as residence. The flow of transaction in the said case is follows:-
a) The Applicant leases residential accommodations to commercial concerns. The premises are suitable only for residential purposes and are leased to the commercial concerns for use in the residential subletting.
b) The commercial concerns further sublet the subject property to tenants for use only as residence.
5. APPLICANT’S INTERPRETATION OF LAW:
The applicant submitted their interpretation of law, question wise, and contends as under:
Question : 1 Whether the activity of leasing of residential units with basic facilities of maintenance, security and housekeeping constitute as composite supply?
5.1 When a supply consists of two or more components in a bundle, the taxability of the bundle shall depend on its qualification as a ‘composite’ or a ‘mixed’ supply. If the bundle qualifies as a composite supply, the entire bundle would be treated akin to the principle supply comprised in the bundle. If the bundle qualifies as a mixed supply, the entire bundle would be treated akin to the supply that attracts the highest rate of tax.
5.2 The terms composite supply, principle supply and mixed supply have been defined in section 2 of the CGST Act. The relevant extracts have been reproduced hereunder for ease of reference:-
Composite supply
“(30). “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;”
Principle supply
“(90). “principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;”
Mixed supply
“(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;”
5.3 based on the above, it can be observed that, in order for a bundle to qualify as a composite supply, the following cumulative conditions are required to be fulfilled:-
i. The supply consists of two or more taxable supplies;
ii. The supplies are naturally bundled;
iii. The supplied are made in conjunction with each other in the ordinary course of business; and
iv. One of the supplies is a principal supply
5.4 In the instant case, the bundle of supplies provided by the Applicant consists of two or more taxable supplies viz., renting of immovable property, security, maintenance and housekeeping services. Therefore, condition i. above stands satisfied. Hence, the point of determination for whether the bundle of supply of renting of residential dwelling along with basic amenities such as security, maintenance and housekeeping services provided by the Applicant qualifies as composite supply, is dependent on whether the supplies are naturally bundled in the ordinary course of business (conditions ii. and iii. Above).
5.5 In the subsequent paragraphs, the Applicant has provided a detailed explanation as to how the supply of renting along with basic amenities such as security, maintenance and housekeeping services provided as a comprehensive package are naturally bundled in the ordinary course of business.
5.6 The Applicant wishes to highlight that what constitutes as ‘naturally bundled supplies’ or ‘supplies made in conjunction with each other in the ordinary course of business’ is not defined in the GGST Act. However, the Applicant places reliance on the GST e-flyer issued by the Central Board of Indirect Tax and Customs which states that whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices adopted in the area of business to which the services relate. A copy of the e-flyer has been enclosed herewith as Annexure 1.
5.7 As per the aforementioned e-flyer, such normal and frequent policies adopted in a business can be ascertained from several indicators such as:-
– The perception of the consumer or the service receiver;
– Majority of service providers in a particular area of business provide similar bundle of services;
– Nature of the service – if the nature of the service is such that one of the service 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 the main service;
5.8 Other illustrative indicators of bundling of supplies in the ordinary course of business provided in the e-Flyer are as follows:-
– The customer pays a single amount, no matter how much of the package they actually receive or use;
– The elements are normally advertised as a package;
– The different elements are not available separately;
– The different elements are integral to one overall supply – if one of more are removed, the nature of the supply would be affected.
5.9 In order to establish that the supply of renting of residential dwelling is naturally bundled in the ordinary course of business, each of the above indicators have been analyzed in light of the facts of the instant case:
