GST payable on Hostel Services by Mody Education Foundation: AAR

In re Mody Education Foundation (GST AAR Rajasthan)

In the instant case, we find that the exemption to accommodation service is applicable in respect of a unit of accommodation where tariff is below Rs. 1000/- per day. Notification No. 11/2017-CT(Rate) as discussed above provides applicable GST rate as per declared tariff of a unit of accommodation. Further, accommodation having declared tariff of a unit of accommodation of one thousand rupees and above but less than two thousand five hundred rupees per unit per day or equivalent, the GST rate will be charged 12%, further accommodation having declared tariff of a unit of accommodation of two thousand five hundred rupees and above but less than seven thousand five hundred rupees per unit per day or equivalent, the GST Rate will be charged 18%, further accommodation having declared tariff of a unit of accommodation of seven thousand five hundred rupees & above per unit per day or equivalent, the GST Rate wall be charged 28%. The applicant has stated in their application that they will charge below Rs.  1000/-per student per day, but it has not been declared by the applicant that how many Student will stay in a room, if more than one students wall stay in a room then GST rate will be chargeable, since the applicant did not make clear that how many students wall stay in a room/unit, hence considering non-clarity of tariff of a unit of accommodation, the GST rate as per notification no. 11/2017-Central Tax (Rate), dated 28.06.2017 will be applicable to the applicant.

Further, the applicant is providing service of serving of food to students in hostel. The said service is classifiable under HSN 9963 as provided under notification no. 11/2017-Central Tax (Rate), dated 28.06.2017 and GST rate will be applicable as per the above notification as discussed in para no. 8.

In view of the above, we find that the services supplied by the applicant is a Mixed Supply and highest rate of GST will be applicable amongst services provided by the applicant to students in hostel.

Read AAAR Order:- Unit of Accommodation is ‘Hostel Seat’ not Hostel Room – AAAR

FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, RAJASTHAN

Note: Under Section 100 of the CGST/RGST Act, 2017, an appeal against this ruling lies before the Appellate Authority for Advance Ruling constituted under section 99 of CGST/RGST Act, 2017, within a period of 30 days from the date of service of this order.

At the outset, we would like to make it clear that the provisions of both the CGST Act and the RGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the RGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / RGST Act would be mentioned as being under the “GST Act”.

The issue raised by M/s Mody Education Foundation, Lakshmangarh, Sikar, Rajasthan (hereinafter the applicant) is fit to pronounce advance ruling as it fans under the ambit of the Section 97(2) (a), (b), (c) & (e) given as under: –

(a) Classification of any goods or services or both;

(b) App ability of a notification issued under the provisions of this act,

(c) Determination of time and value of supply of goods or services or both.

(e) Determination of liability to pay tax on any goods or services or both,

> Further, the applicant being a registered person (GSTIN is 08AABTM0215E1Z5 as per the declaration given by him in Form ARA-01) the issue raised by the applicant is neither pending for proceedings nor proceedings were passed by any authority. Based on the above observations, the applicant is admitted to pronounce advance ruling.

1. SUBMISSION AND INTERPRETATION OF THE APPLICANT:

1. Mody Education Foundation, having its registered office at Kanchanjungha (7th Floor), 18- Barakhambha Road, New Delhi- 110001 (herein after referred as MEF) is Society registered under Societies Registration Act, 1860 with Registration No. S-10560/1986 (date of Registration – 27-02-1986).

2. The Mody Education Foundation was established with following objective-

i. to provide for instruction and training in such branches of learning as it may deem fit.

ii. to provide for research and for the advancement of and dissemination of knowledge.

iii. to undertake extra moral studies, extension programmers and field outreach activities to contribute to the development of society.

iv. to enter into any agreement or arrangement for or to take over, run and maintain one or more schools, college, institutions or centers at any place in India, and to impart and promote education in Arts, Science and Commerce etc.

v. to organize, run, manage, schools, colleges, and institutions.

vi. to establish and manage boarding house, museums, laboratories exhibitions, libraries, lecture-halls, practical classes and other educations facilities.

vii. to grant stipends, scholarship, studentships and other allowances, concessions and gratuities to deserving student and candidates.

viii. to hold examinations and grant certificates of proficiency or other academic distinctions or titles to persons who have complied with the conditions laid down in the regulations of the society.

ix. to acquire by concession, grant, purchase, barter, lease, license, bequest, gift or otherwise either absolutely or conditionally and either alone or jointly with others the agricultural lands, anywhere in India and to earnout all agricultural activities, including Plantation, Afforestation, Agro forestry, Horticulture, raising of crops, growing medicinal and aromatics plants, grass, garden products, dairy farming, breeding of livestock, grazing and all allied activities etc. incidental to agriculture.

x. to establish, create and develop sanctuaries for the protection and development of wild life.

xi. to work and create awareness for protection and development of ecology, environment, soil and water conservation and carry on all activities relating to this

xii. to do all such other acts and things as may be necessary or desirable to further the objects of the society.

3. MEF is running a CBSE affiliated School from class 3rd to 12th at NH-11, Laxmangarh, Distt. Sikar-332311. MEF is registered under GST law having GSTIN 08AABTM0215E1Z5. MEF is also the Sponsoring body of Mody University of Science & Technology.

4. Mody University of Science & Technology (herein after referred as MUST) is a University established u/s 2(f) of the UGC Act, 1956 and providing educational services to its Students (Girls Students Only). MUST is also registered under GST law having GSTIN- 08AAAJM1982F1Z4.

5. MEF has surplus infrastructure facilities after utilization thereof for its activities including running of school. This surplus infrastructure has been let out to MUST for use. The Infrastructure given to MUST for use includes Academic Buildings, certain Hostel Buildings, Office Buildings, Villas, and Dining hall.

6. MEF has been charging Rent from MUST for all above buildings and paying GST @ 18% on the same.

7. MUST is collecting Hostel fees from its students, which includes Lodging and Boarding in the Campus and GST is not charged being exempt under Sr. No. 66 of notification no. 12/2017 CTR Dated 28-06-2017 as amended.

8. University’s Management is considering a proposal to discontinue use of Dining Hall facility and hostel building taken on rent as it is finding it difficult to maintain and operate them. Hence both the facilities shall be returned back to MEF.

9. Other Infrastructure facility such as University Academic Buildings and Villas where the faculties are residing etc. will continue to be used by MUST and It will pay rental charges to MEF and GST @ 18% on the same will be paid accordingly.

10. Hostel facility to the Students of MUST shall be provided by MEF. Hostel Facility shall include Lodging and boarding facility wherein food shall be served in Dining hall.

11. MEF will charge directly from the students for the hostel facilities enjoyed by MUST Students. Charges for Hostel facility comes out less than 1000/- per day. Although charges are collected on yearly basis from the students.

12. MEF is of the opinion that the Hostel facility charges recovered from the students of MUST are not chargeable to GST. The basis of the opinion is exemption notification no. 12/2017 CTR Dated 28-06-2017 as amended time to time. The relevant entry of the exemption notification (Sr. No. 14) is produced below-

Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having value of supply of a unit of accommodation below or equal to one thousand rupees per day or equivalent.

13. The issue has been clarified by the CBIC through its Circular No. 32/06/2018-GST, dated 12-2-2018. Relevant extract is as under-

14. From the above statutory provisions, the applicant MICK is of opinion Hint accommodation facility provided loony person having value upto Rs. 1000/ per day is exempt from levy of GST.

15. Applicant is also of opinion that the lodging service in hostel along with Boarding wherein foods is provided in dining hall form part of principle service of Hostel accommodation and therefore exempted from levy of Goods & service Tax under the same exemption entry.

16. The above understanding of the applicant is based on the guidance provided by the CBIC through its Education Guide dated 20.06.2012 issued in respect of erstwhile law. The relevant extract of the Guidance Guide is produced hereunder-

9.2.1 Services which are naturally bundled in the ordinary course of business

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’

Illustrations-

> A 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.

> A 5-star hotel is booked for a conference of 100 delegates on a lump sum package with the following facilities:

– Accommodation for the delegates

– Breakfast for the delegates.

– Tea and coffee during conference

– Access to fitness room for the delegates

– Availability of conference room

– Business centre

As is evident a bouquet of services is being provided, many of them chargeable to different effective rates of tax. None of the individual constituents are able to provide the essential character of the service. However, if the service is described as convention service 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. However, it will he 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.

9.2.4 Manner of determining if the services are bundled in the ordinary course of business

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 –

> The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business.

> Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.

> The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that 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. For example, service of stay in a hotel is often combined with a service or laundering of 3-4 Items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business.

> Other illustrative Indicators, not determinative but indicative of bundling of services in ordinary course of business are –

– There is a single price or the customer pays the same 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 or more is removed, the nature of the supply would he affected.

No straight jacket formula can he laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to he individually examined in the backdrop of several factors some of which are outlined above.

17. From the reading of the education guide of the CBIC issued in respect of service tax, it can be comprehended that service which are naturally bundled shall be treated as single service based on the principle supply having dominance.

18. MEF is providing Hostel accommodation facility to the Students which consist of Lodging service alongwith Boarding facility which is a natural combination of service

19. It is pertinent here to discuss the Advance Ruling pronounce in the matter of IN RE SRISAI LUXURIOUS STAY LLP 2020 (36) G.S.T.L. 462 (AAR GST Kar.) in this respect. The facts of the Ruling are as under

The applicant in said ruling was providing following services along with lodging service in hostel-

(a) Meals which includes breakfast, lunch and dinner

(b) Fully furnished rooms

(c) Found the clock security guards at the premises

(d) Housekeeping facilities

(e) Washing Machine facilities

(f) Television m each room

(g) Internet facilities (WIFI available)

(h) Vehicle parking facilities

The above facilities were part and parcel of the services provided for which single price was charged from the service recipients. The applicant was also charging additional charges for the extra-facilities opted by the inhabitants in addition to the facilities that are currently included in the tariff received by the inhabitants but the overall price would be less than the present exemption limit of Rs. 1000 per day per Unit.

The advance Ruling authority pronounced its ruling in respect of the facilities included in the package of services with lodging service as under

Further, the Entry No. 14 of Notification No. 12/2017-Central Tax (Rate) is analyzed and it says all services of SAC 9963 provided by such a. supplier having a declared tariff of less than Rs. 1000-00 per day or equivalent would, be exempt. Further since in this supply, all the supplies are made as a package with the accommodation service being the principal supply, the entire supply would be treated as a composite supply of accommodation service as per Section 8 of the CGST Act, 2017. Hence, the proposed supply of services in question by the applicant would not be liable to tax as per Entry No. 14 of the Notification No. 12/2017-Central Tax (Rate) as amended from time to time.

In respect of the additional services for which extra charges were recovered, the Authority pronounced its decision as under-

8. Regarding the third question, it is seen that the applicant intends to provide other services in addition to the facilities that are in addition to the compulsory services provided and charge the clients for the same. Hence, it would amount to providing of services under a separate contract and as per the facilities provided, as these services are independent of the accommodation services provided. The applicant states that the overall charges collected including the additional services is less than Rs. 1000-00 per day per unit of accommodation. The Entry No. 14 of the Notification No. 12/2017-Central Tax (Rate) is verified and the description states that “Services by a hotel, inn, guest house, club, or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent” and these services should belong to Group 9963. The Group 9963 of the Service Accounting Codes as annexed to Notification No. 11/2017-Central Tax (Rate) relates those services which are coming under Food, Edible preparations, alcoholic and non-alcoholic beverages serving services, and if the additional services provided by the applicant belong to the Group 9963, then the turnover of these services will also be exempt as they are covered under the entry 14 of the Notification No. 12/2017-Central Tax (Rate). But those services which are supplied independently to the clients which do not belong to the Group 9963 are liable to tax at appropriate rates, provided that the applicant is liable for registration.

20. The view of the applicant MEF also gets strengthen by the above referred advance Ruling whereby the service of lodging along with boarding has been categorically held as bundle supply on the basis of principle supply of accommodation service and exempted under the sr. no. 14 of the exemption Notification No. 12/2017-Central Tax (Rate)  as amended. Therefore, the applicant is of firm opinion that the hostel facility alongwith boarding services provided to students of MUST is exempt from GST.

21.The registered person therefore wishes to obtain advance ruling on the following points-

(a) Whether Hostel facility which includes Lodging and Boarding service provided by MEF 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 No. 12/2017-Central Tax (Rate)?

2. QUESTIONS ON WHICH THE ADVANCE RULING IS SOUGHT

Whether Hostel facility which includes lodging and Boarding service provided by MEF 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 No. 12/2017-Central Tax (Rate)?

3. PERSONAL HEARING

In the matter personal hearing was granted to the applicant on 17.03.2021 at Room no. 2.11 NCRB, Statue Circle, Jaipur. Shri Manmohan Mahipal C.A. (Authorised Representative) of applicant appeared for PH. During the PH, he reiterated the submissions already made in the written application. He also made additional submission during the PH, which is related to exemption.

4. COMMENTS OF THE JURISDICTIONAL OFFICER

The jurisdictional officer (Superintendent CGST-Range-XXXI, Sikar, Rajasthan) has submitted his comments vide their letter which can be summarized as under:

M/s Mody Education Foundation has wished to obtain Advance Ruling on following point: –

“Whether Hostel facility which includes Lodging and Boarding service provided by MEF 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 No. 12/2017-Central Tax (Rate)?” Entry No. 14 of the Notification No. 12/2017-Central Tax (Rate), is produced verbatim: –

Thus service of accommodation having declared tariff of a unit below one thousand rupees is charged at Nil rate in GST. Now, the point is that the accommodation services provided by Mody Education Foundation are bundle of lodging, boarding, food etc. services. This issue has been covered under Advance Ruling No. KAR ADRG 20/2020, Dated 31st March, 2020, wherein it has been ruled that-aIf the applicant charges additional charges for extra facilities opted by the inhabitants in addition to the facilities that are currently included in the tariff received by the inhabitants but the overall price would be less than the present exemption limit of Rs. 1,000-00 per day per unit, then the same is liable to tax at the rates applicable to them as they are independent supplies, if they do not belong to the Group 9963. If they belong to the Group 9963, then the same are exempt as per entry no. 14 of the Notification No. 12/2017-Central Tax (Rate)“.

SAC code 9963 includes services of (Accommodation, food and beverage services).

In view of above it appears that Hostel facility which includes lodging and boarding service provided by MEF 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 No. 12/2017-Central Tax (Rate).

5. FINDINGS, ANALYSIS & CONCLUSION:

We find that, Mody Education Foundation, Lakshmangarh, Sikar, Rajasthan shall provide hostel facility which include lodging and boarding facility wherein food shall be served in dining hall to the student of Mody university of Science & technology, Sikar, Rajasthan. The applicant will charge directly from the students and charges for hostel facility comes out less than 1000/- per day, although charges are collected on yearly basis from the students.

1. We observe that the applicant is providing accommodation service on rent to students and also providing some ancillary services like food facility etc.

2. To examine the facts of application and contention of the applicant, we need to refer to concept of supply, composite supply, mixed supply, concept of naturally bundled, principal supply and various notifications and circulars incidental to these concepts.

3. First, the provision of hostel accommodation alongwith ancillary facilities falls under ‘Supply’ as defined under Section 7 of the GST Act, 2017 which is as under-

(1) For the purposes of this Act, the expression “supply” includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

As the applicant is supplying accommodation services along with some ancillary services for a consideration (Rs. Less than 1000/- per day), and charges are collected on yearly basis from the students, the activity falls under the definition of supply.

4. Now, as the supply involves multiple services, the issue has to be examined whether the aforesaid supply is a Composite Supply or a Mixed Supply.

Section 2(30) of GST 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;

We find that essential components of a composite supply are as under-

– two or more taxable supplies;

– services should be naturally bundled;

– supplied in ordinary course of business;

– one of the supply out of whole should be a principal supply.

5. Since, bundling/Naturally bundled service has not been defined in GST law, hence, reference can be taken from CBEC Education Guide issued in 2012 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’

6. Whether services are bundled in the ordinary course of business or not 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 many indicators some of which are listed below: –

i .The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reason-ably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business.

ii . Majority of service providers in a particular area of business provide similar bundle of services

iii .The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business.

We find 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 services like food cannot be said to arise naturally with the principal service of hostel accommodation and therefore are not bundled naturally with principal supply.

7. In view of the above, we find that the said supply is not a Composite Supply, therefore, the facts of the case can be examined in respect of Mixed Supply.

Mixed Supply has been defined in Section 2(74) of GST Act, 2017 as below-

(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;

Further, tax liability on a mixed supply shall be determined as defined in Section 8 (b) of GST Act, 2017 which is as under-

“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.”

8. We observe that the services supplied by the applicant such as hostel accommodation, food etc. to the student of Rs. Less than 1000/- per day per student is not a Composite supply, hence, the services the applicant is supplying is Mixed Supply as per GST Act, 2017 and the applicable rate of tax is the highest rate applicable to the various services supplied by the applicant.

To ascertain rate of GST on Mixed Supply, we have to examine rate of GST on services provided by the applicant to determine the highest rate of tax applicable on whole supply.

(a) Entry No. 7 of the Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 as amended, reads as under:

(b) Entry No. 14 of the Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017 reads as under:

Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017

The same is also clarified vide CBIC Circular No. 32/06/2018-GST dated 12th February, 2018. The relevant portion is as below-

9. In the instant case, we find that the exemption to accommodation service is applicable in respect of a unit of accommodation where tariff is below Rs. 1000/- per day. Notification No. 11/2017-CT(Rate) as discussed above provides applicable GST rate as per declared tariff of a unit of accommodation. Further, accommodation having declared tariff of a unit of accommodation of one thousand rupees and above but less than two thousand five hundred rupees per unit per day or equivalent, the GST rate will be charged 12%, further accommodation having declared tariff of a unit of accommodation of two thousand five hundred rupees and above but less than seven thousand five hundred rupees per unit per day or equivalent, the GST Rate will be charged 18%, further accommodation having declared tariff of a unit of accommodation of seven thousand five hundred rupees & above per unit per day or equivalent, the GST Rate wall be charged 28%. The applicant has stated in their application that they will charge below Rs.  1000/-per student per day, but it has not been declared by the applicant that how many Student will stay in a room, if more than one students wall stay in a room then GST rate will be chargeable, since the applicant did not make clear that how many students wall stay in a room/unit, hence considering non-clarity of tariff of a unit of accommodation, the GST rate as per notification no. 11/2017-Central Tax (Rate), dated 28.06.2017 will be applicable to the applicant.

10. Further, the applicant is providing service of serving of food to students in hostel. The said service is classifiable under HSN 9963 as provided under Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and GST rate will be applicable as per the above notification as discussed in para no. 8.

In view of the above, we find that the services supplied by the applicant is a Mixed Supply and highest rate of GST will be applicable amongst services provided by the applicant to students in hostel.

11. The applicant has cited various case laws and references viz. M/s. Srisai Luxurious Stay LLP., Karnataka vide Advance Ruling No. KKR ADRG 20/2020, dated 31.03.2020], M/s Logic Management Training Institutes Pvt. Ltd. Kerla vide Advance Ruling No. KER/76/2019, dated 20.05.2020, contending that the services supplied by them is a composite supply is not tenable as the facts are quite different from the present application.

12. In view of the foregoing, we rule as follows: –

RULING

In view of the discussion above the applicant would not be eligible for exemption under entry no. 14 of the Notification No. 12/2017-Central Tax (Rate), dated 28-6-2017.