prpri GST on New year Festivities GST on New year Festivities

GST and New Year Festivities

As the New Year is ushering, every one wishes to welcome it with lots of celebrations, fun and frolic. Hotels, Resorts, Casinos and Clubs do brisk business hosting the revellers in their fold offering food and beverages, entertainment programs, recreation/carnival events, amusement facilities and accommodation for a fixed period.

Each one of these activities/services are distinct, identifiable and separate. At the same time, these services are clubbed together and offered as a single package. Given this background, let us examine the applicability of GST and effective Rate of GST on these individual services

Sl.No Description of Supply Rate of GST  Availability of Input Tax Credit
1. (i) Restaurant Services in the Hotels whose room tariff rate is less than Rs. 7500 per day or 5% No
(ii) Restaurant Services in the Hotels whose room tariff rate is above than Rs. 7500 per day 18% Yes
2. Admission to entertainment programs 28% Yes
3. Acess to amusement facilities 28% Yes
4. (i) Accommodation in the Hotels whose room tariff rate is less than Rs. 7500 per day or 18% Yes
(ii) Accommodation in the Hotels whose room tariff rate is above than Rs. 7500 per day 28% Yes

Whereas as mentioned earlier, many of these services like food and beverages, event and accommodation or in different combinations are combined and offered a single package to the Customers for a fixed price and the said packages do fall under the ambit of “mixed supply” in terms of the sub section (74) of  the Section 2 of CGST Act which defines it as under;

(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;

These single packages is not composite supplies, since, they are unlike a naturally bundled service like supply of accommodation with breakfast or Buffet with light music in a Restaurant and as such do not fall under “composite supply” and has to be treated as “mixed supply”.

If we observe the applicable rate of tax on these individual services that are varying between 5% to 28%. Then the question arises what will be the applicable GST in case of single package consisting of these individual distinct services as it is classified as “mixed supply”. The tax liability on “mixed supply” is determined in terms of Section 8 of the CGST Act and the provisions of the same are as under;

8. The tax liability on a composite or a mixed supply shall be determined in the following manner, namely:—

(a) a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and

(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.

From the applicable taxation point of view, though the rate of tax on the individual supplies in the present context varies from 5% to 28%, the applicable rate of tax on Supply of this Single Package is to be taken at 28% being the highest rate of tax applicable.

In fact, this high tax makes the New Year festivities costlier and often tends the Suppliers to plan for tax saving like billing the individual components of supply individually. However, Billing the individual components as separate supplies and charging them with applicable tax rate in order to save on tax front can be easily caught by the taxman who goes by promotional material and purchase orders placed on the Supplier and will be treated as tax evasion and charges them with consequential recovery along with interest and penal provisions. Therefore, instead of indulging in this sort of things let the industry bodies request the Government to reduce the taxes on these and let us hope the Government rationalizes the rate of taxes on supply of services also in the forthcoming GST Council meeting.

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  1. Mallikarjun Reddy says:

    Sir, nice article at appropriate time. Any such combo packages even with bifurcated prices or otherwise, should first be verified whether it would be a Composite Supply or not. Composite supply is as defined below.

    “Sec 2(30) of CGST Act: “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”

    As per above, in the new year package even if prices are separated or separately charged but the constituent supplies are not provided separately means no option to customer to avail any one or more. Therefore it appears that they are “…naturally bundled and supplied in conjunction with each other….” . Further, even if the same are supplied for single price also to become Mixed Supply it should not be a Composite Supply. Further, additionally to be mixed supply each of the constituent supplies can be supplied separately and are not dependent on any other whereas in the instant case it is not so as they are not independently opted. In view of the above, it is more appropriate to treat it as Composite Supply wherein primary supply is entertainment. Off course in either case it attracts 28% GST. Author may please examine this.

  2. rrkothapally says:

    Learned author is of the view that separate bills for individual components of supply of services with applicable gst rates cannot be issued as the brochure with information on packages indicate that services are in the nature of mixed supply. However in my view, illustration under mixed supply definition seem to suggest that there is no bar in issuing separate bills for each individual services mentioned in the new year package.

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July 2021