AAR rules hostel accommodation with food and facilities is mixed supply taxable at 18% GST rate

AAR Rajasthan ruled that hostel accommodation services bundled with food, gym, housekeeping, and playroom facilities constitute a mixed supply rather than composite supply, as ancillary services are not naturally bundled with principal accommodation service. Each service attracts different GST rates: food service at 5%, recreational/housekeeping services at 18%. The entire supply is taxable at highest rate of 18%. Exemption under Notification 12/2017 denied as applicant is not an educational institution and charges students directly rather than through educational institution.

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Issues Involved:
1. Classification of Services
2. Applicability of a Notification Issued under the Provisions of the GST Act
3. Determination of Liability to Pay Tax on Services
4. Taxability and Rate of GST on Composite Supply
5. Appropriate Classification and Applicable Rate of GST on Supply of Hostel Accommodation with Food Facility

Detailed Analysis:

1. Classification of Services:
The applicant, a registered entity, provides hostel accommodation along with ancillary services like food, gym, housekeeping, etc., to students for a consolidated fee of Rs. 17,000 per month. The primary question is whether this constitutes a 'composite supply' under Section 2(30) of the CGST Act, 2017.

Applicant's Interpretation:
- The applicant argues that the services provided are naturally bundled and should be treated as a composite supply, with the principal supply being the hostel accommodation.
- They cite that since the daily charges for accommodation do not exceed Rs. 1000, the entire service should be exempt from GST under Notification No. 12/2017.

Authority's Findings:
- The provision of hostel accommodation along with ancillary services falls under 'Supply' as defined in Section 7 of the GST Act, 2017.
- For a service to be classified as a composite supply, it must consist of two or more taxable supplies that are naturally bundled and supplied in conjunction with each other in the ordinary course of business, with one being the principal supply.

2. Applicability of a Notification Issued under the Provisions of the GST Act:
The applicant contends that the hostel accommodation service, being less than Rs. 1000 per day, should be exempt from GST under Sr. No. 14 of Notification No. 12/2017.

Authority's Findings:
- The ancillary services like food, gym, housekeeping, and playroom are not naturally bundled with the principal supply of accommodation service.
- These services can be independently supplied and are not integral to the accommodation service. Hence, the supply does not qualify as a composite supply.

3. Determination of Liability to Pay Tax on Services:
The authority examines whether the supply of hostel accommodation along with ancillary services is a composite supply or a mixed supply.

Authority's Findings:
- The services provided by the applicant are not naturally bundled and do not constitute a composite supply.
- Instead, the services are classified as a mixed supply under Section 2(74) of the GST Act, 2017, which means the highest rate of GST applicable to any of the services in the bundle will apply to the entire supply.

4. Taxability and Rate of GST on Composite Supply:
The applicant argues that the entire service should be exempt from GST as the daily charges for accommodation do not exceed Rs. 1000.

Authority's Findings:
- Since the supply is classified as a mixed supply, the highest rate of GST among the services provided will apply.
- The highest rate of GST among the services provided by the applicant is 18% (CGST 9% + SGST 9%).

5. Appropriate Classification and Applicable Rate of GST on Supply of Hostel Accommodation with Food Facility:
The authority examines the classification and rate of GST applicable to each service provided by the applicant.

Authority's Findings:
- Hostel accommodation service is exempt from GST as the daily charges are below Rs. 1000.
- Gym services attract 18% GST.
- Food services attract 5% GST.
- Playroom services attract 18% GST.
- Housekeeping and room cleaning services attract 18% GST.

Since the services provided constitute a mixed supply, the entire supply will attract the highest rate of GST, which is 18%.

Ruling:
The provision of hostel accommodation along with food facility, playroom, gym, housekeeping, and room cleaning to students, where a consolidated amount is charged, is classified as a mixed supply. The entire charge recovered from the students is not exempt from GST under Sr. No. 14 of Notification No. 12/2017. The highest rate among the services provided is 18%, and thus, the rate of GST on the whole supply will be 18% (SGST 9% + CGST 9%).

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