2021 (1) TMI 972 - AAAR - GST

Hostel accommodation with food and services deemed mixed supply subject to 18% GST rate

The Appellate Authority affirmed the ruling of the Authority for Advance Ruling, determining that the provision of hostel accommodation along with food ... Composite supply - mixed supply - naturally bundled in the ordinary course of business - principal supply - exemption under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 - taxability of bundled services - highest rate applies to mixed supplyComposite supply - mixed supply - naturally bundled in the ordinary course of business - principal supply - Classification of the appellant's package of hostel accommodation together with food and other facilities as composite supply or mixed supply - HELD THAT: - The Appellate Authority examined whether the package is a composite supply (one supply having a predominant principal supply with ancillary elements naturally bundled) or a mixed supply (two or more independent supplies offered for a single price). Applying the statutory tests, the Authority held that the various services (food, TV, gym, housekeeping, room cleaning, laundry etc.) are independent services which can be availed separately and therefore are not shown to be 'naturally bundled in the ordinary course of business' with the hostel accommodation. The Authority found that while accommodation could be a principal supply in some factual scenarios, on the material before it the ancillary services did not qualify as incidentally dependent on the accommodation so as to make the bundle a composite supply. Reliance placed by the appellant on other Advance Rulings was examined and rejected as distinguishable on facts; the Rajasthan AAR's reasoning was found to be reasoned and unimpaired. The Authority therefore concluded that the supply is a mixed supply and not a composite supply. [Paras 6]The package is a mixed supply, not a composite supply.Exemption under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 - value of supply of a unit of accommodation below or equal to one thousand rupees per day - Whether the entire consolidated charge is exempt under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 - HELD THAT: - Given the classification as a mixed supply, the Authority addressed applicability of the hostel accommodation exemption at Sr. No. 14 (which exempts services of residential accommodation where the declared tariff of a unit of accommodation is at or below the stated daily threshold). The Rajasthan AAR's earlier finding that the package constituted a mixed supply led to the conclusion that the entire consolidated charge could not be treated as the exempt rental accommodation service under Sr. No. 14. The Appellate Authority reviewed the factual matrix and prior rulings relied upon by the appellant but found them distinguishable; no error was shown in the AAR's conclusion denying blanket exemption of the entire consolidated charge. [Paras 6]The consolidated charge is not fully exempt under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017.Taxability of bundled services - highest rate applies to mixed supply - Rate applicable to the package where classified as mixed supply - HELD THAT: - The Authority recorded the AAR's holding that when a supply is a mixed supply the entire supply is taxable at the rate applicable to the component attracting the highest rate. On the facts and classification upheld by the Appellate Authority, the highest applicable rate among the individual services provided is 18%, and therefore the whole package is liable to GST at that highest rate. The Appellate Authority found no infirmity in this application of the mixed supply rule and affirmed the AAR's rate determination. [Paras 6]The whole supply is taxable at the highest applicable rate (as held by the AAR).Final Conclusion: The appeal is dismissed. The Appellate Authority upholds the Rajasthan Authority for Advance Ruling: the hostel package is a mixed supply (not a composite supply), the consolidated charge is not wholly exempt under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017, and the supply is taxable at the highest applicable GST rate as determined by the AAR. Issues Involved:1. Classification of the supply as composite or mixed.2. Taxability of the entire charge recovered from students.3. Determination of GST applicability on hostel accommodation with food.4. Appropriate classification and applicable GST rate.Issue-wise Detailed Analysis:1. Classification of the Supply as Composite or Mixed:The appellant argued that the provision of hostel accommodation along with food and other facilities should be treated as a 'composite supply,' where the principal supply is the rental of hostel accommodation. They contended that the food and other facilities are incidental and naturally bundled with the principal supply of accommodation. The appellant cited Section 2(30) of the CGST Act, 2017, which defines 'composite supply,' and provided examples from various sectors like hotels, hospitals, and airlines to support their claim. However, the Authority for Advance Ruling (AAR) concluded that the provision of hostel accommodation along with food, gym, housekeeping, etc., constitutes a 'mixed supply' as per Section 2(74) of the CGST Act, 2017. They reasoned that each service could be supplied independently and is not naturally bundled with the principal service of hostel accommodation.2. Taxability of the Entire Charge Recovered from Students:The appellant claimed that since the hostel charges per day do not exceed Rs. 1000, the entire activity should be exempt from GST under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 dated 28.06.2017. They referenced CBEC Circular No. 32/06/2018-GST, which clarifies that hostel accommodation services with declared tariffs below Rs. 1000 per day are exempt from GST. The AAR, however, held that since the services provided constitute a mixed supply, the exemption does not apply. Consequently, the entire charge recovered from the students is subject to GST at the highest applicable rate among the services provided, which is 18%.3. Determination of GST Applicability on Hostel Accommodation with Food:The appellant argued that the provision of hostel accommodation along with food and other facilities should be treated as a composite supply, thus attracting the GST rate applicable to the principal supply of hostel accommodation. They cited various rulings from other Advance Ruling Authorities to support their claim. However, the AAR concluded that the services provided are not naturally bundled and constitute a mixed supply. Therefore, the entire supply is subject to GST at the highest rate applicable to any of the services provided, which is 18%.4. Appropriate Classification and Applicable GST Rate:The appellant sought clarification on the appropriate classification and applicable GST rate for the supply of hostel accommodation along with food and other facilities. They argued that the entire supply should be classified under the principal supply of hostel accommodation and be exempt from GST if the charges per day are less than Rs. 1000. The AAR, however, classified the supply as a mixed supply and determined that the applicable GST rate is 18%, as it is the highest rate among the services provided.Conclusion:The Appellate Authority upheld the AAR's ruling, stating that the provision of hostel accommodation along with food, gym, housekeeping, etc., constitutes a mixed supply. Consequently, the entire charge recovered from the students is subject to GST at the highest applicable rate of 18%. The appeal filed by the appellant was rejected.