Recently Rajasthan Appellate authority for advance ruling has upheld the decision of AAR in case of AAR. The questions raised before AAR by Applicant and replies are as:

(a) Whether provision of hostel accommodation along with food facility to the students wherein consolidated amount is charged from the students is a composite supply where principal supply is that of rent of hostel accommodation?

Ruling – The provision of hostel accommodation along with food facility, Play Room, Gym, Housekeeping, Room Cleaning to the students wherein consolidated amount is charged from the students is Mixed Supply.

(b) Whether the entire charge recovered from the students would be exempt from GST under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 dated 28.06.2017 as amended if the charges per day is less than Rs. 1000/-

Ruling – (b) The entire charges recovered from the students are not exempted from GST under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 dated 28.06.2017

Facts : the Appellants are running hostel accommodation alongwith incidental supply of food to all students in Kota (Rajasthan) wherein a consolidated amount of Rs. 17,000/- per month is charged from each student . Additional amenities are also available which are part and parcel of the hostel accommodation. These are, TV in dining hall, Playroom,  Gym, Housekeeping, Room cleaning, Washing of bed sheets

There is no system wherein student is provided with a choice to opt for hostel accommodation without incidental supply of food, other amenities. Thus students need to pay Rs.17,000 only without any choice.

AAAR Ruling – AAAR held as : We find that in the instant case the appellant is supplying various services like supply of food, TV in dining hall, Playroom, Gym, Housekeeping of entire hostel premises, Room cleaning and Washing/ dry-cleaning of bed sheets & linen of rooms along with Hostel Accommodation service. In view of the discussion of above para 6.4.1 and 6.4.2, we are of the view that supply of various other services as detailed above with Hostel Accommodation service is not naturally bundled in normal course of business. Each service is an independent service and can be supplied separately. It is obvious that a person can live on the hostel without availing other services like food, TV, gym, etc.; but to make ones stay more comfortable, the said ancillary services are availed by him.

Thus, on basis of above reasoning AAR held that hostel services are mixed supply since these services can be supplied separately and thus not naturally bundled. And thus taxed at highest rate of service as per mixed supply concept.

Implications of Composite vs Mixed supply

Implication of Classfication as mixed vs composite supply is that

a. in mixed supply, the rate of GST on whole supply will be the rate of supply which attracts highest rate of GST.

b. Composite supply – Attracts rate of GST applicable to Principal supply.

In present case, applicant claims that hostel supply being composite supply and accommodation being principal supply should be a exempt supply exempted from GST under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 dated 28.06.2017.

However in case of mixed supply supply, highest rate amongst services provided is 18%, accordingly, rate of GST on whole supply will be 18% (SGST 9% + CGST 9%).

Thus as per AAAR whole supply taxable at 18% GST.

Analysis – Lets look at definitions of Composite and Mixed Supply to analyse the current case

Section 2 (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;

Section 2(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;

Our Comments:

1. CBIC education guide during service tax era provided some key factors to determine meaning of naturally bundled services. One such parameter is as:

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.

So students taking accommodation in hostel will definitely like to avail services at a given price from hostel only. Now if hostel is expensive, it is natural that students will expect amenities from hostel only. Might be some student expect availment of services from outside like gym but again majority or large number of consumers will expect amenities from hostel for their convenience.

Let us analyse this from perception of consumer. Practically, if say 100 students are living in a hostel,

a. would student go to some other place for watching TV or student would like to buy their own TV. Infact a cable connection would also be required. We understand that all 100 students would like to avail TV and cable services of Hostel provider only.

b. would every student will search for their independent servant for cleaning of room, washing of bedsheets when hostel is providing the facility.

c. Would students for their Gym needs, go and found other gym nearby when hostel is providing same.

d. Housekeeping of entire hostel premises – Would all students should sit and decide regarding housekeeping of entire hostel premises.

Thus based on above analysis, students would like to avail above services from a common source and who else better than hostel provider. hostel provider is bound to provide above services on a given fixed price. This case if also analysed from business point of view, will also give us same result of all services being a composite supply. A hostel provider fixes rates based on the market scenario, otherwise students will search for other option. So for a particular price, if students are availing all services of a hostel, supply will definitely be a composite supply with accommodation being the principal supply.

The use of words “in the ordinary course of business” specifically indicates that every case should be analyzed from business point of view.

2. In this ruling AAR has failed to consider what is naturally bundled in the ordinary course of service. AAR reasoning is that all supplies can be made separately and thus supply will be mixed supply. If we do analyse above definitions even naturally bundled supplies can be supplied separately but it is naturally bundled in normal/ordinary course of business since business runs that way and for ease of consumer as well.

So reasoning of AAAR that supplies are independent and can be supplied independently is not proper and without analyzing all limbs of definition of composite supply.

Accordingly, we understand that these services should be composite supply with accommodation being principal supply.


Disclaimer – The views expressed herein are the views of the article writer and cannot be used in framing of opinions or devising methodologies for the purpose of compliance without an independent evaluation – [email protected]

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Qualification: CA in Practice
Company: Namish Gupta & Company, Chartered Accountants
Location: Jaipur, Rajasthan, IN
Member Since: 28 Sep 2020 | Total Posts: 3

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May 2021