AAAR, Rajasthan has pronounced Appellate Advance Ruling on 27.10.2021, in the case of Mody Education Foundation, Laxmangarh, Distt. Sikar (2022) 37 J. K. Jain’s GST & VR 164, that;
“Hostel Accommodation service for students with allied services, like Food etc. have been treated as “Mixed Supply”, attracting the highest rate of tax.”
1. Background.─ M/s Mody Education Foundation is registered Trust u/s 12AA of the Income Tax Act, 1961. Appellant is considering a proposal to allow the students 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. ‘Boarding and Lodging charges’ shall be based on the type of ‘Hostel Seat’ opted by the student.
2. Discussion & Findings. – ………
8.1 We have carefully gone through the Appeal papers filed by the Appellant, the Ruling of the AAR, Rajasthan, written as well as oral submissions made by the authorized representative(s) of the appellant, at the time of personal hearing held on 14.9.2021.
8.2 We find that the Appellant is running a CBSE affiliated school from class 3rd to 12th at NH-11, Laxmangarh, Distt. Sikar and registered under GST law. The appellant is also the sponsoring body of Mody University of Science & Technology (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. 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. Single occupancy and double occupancy (AC/Non AC) Hostel Seats are being offered by appellant for the students of MUST. Appellant filed an application before the AAR, Rajasthan 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 up to Rs.1000/- per day would be eligible for exemption under entry no. 14 of the notification 12/2017-CT(R) dated 28.6.2017?”
8.3 AAR Rajasthan has observed that the Service provided by appellant to students of MUST is a mixed supply u/s 2(74) and not a composite supply u/s 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 12/2017-CT(R) dated 28.6.2017
Aggrieved by the ruling the appellant filed present appeal before this forum.
8.4 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 S.2(30), 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, i.e. 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.
8.5 We further note that as per S.2(74), 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.
8.6 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 AAR, Rajasthan 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 GSTL 315(AAR)-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.
All these components are independent of each other. The said ruling has been upheld by the AAAR of West Bengal (2019) 27 GSTL 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.
8.7 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. AAR 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.
8.8 Further, as per S.8 (b), 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 S.8, CGST Act, 2017, in case of mixed supply of accommodation and food, highest rate of both will be applicable.
8.9 The appellant has also placed reliance of various case laws passed by Advance Ruling authorities. We are of the opinion that these orders have not been passed by the higher forum than the present one. Further, each case has to be examined individually in the backdrop of several factors.
9. Accordingly, appeal filed by appellant is disposed off in above terms.
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