NO PENALTY WITHOUT MENS REA: GST DEMAND SET ASIDE FOR LACK OF FRAUDULENT INTENT

NO PENALTY WITHOUT MENS REA: GST DEMAND SET ASIDE FOR LACK OF FRAUDULENT INTENT

RAJASTHAN APPELLATE AUTHORITY FOR ADVANCE RULING

GOODS AND SERVICES TAX

Before the Bench of:

1.  Sh. Pramod Kumar Singh, Member (Central Tax)

2. Dr. Preetam B. Yashvant , Member (State Tax)

Case Title:-M/s Kalani Infrastructure Private Limited,

(GST AAAR RAJASTHAN)

Appeal No. RAJ/AAAR/APP/05/2019-20

Advance Ruling No. RAJ/AAR/2019-20/30 dated 09.01.2020.

Date of Judgement/Order:- 12th May 2020

BRIEF OF FACTS

Para No. 3.3 Since the hostel charges recovered from the student per day does not exceed Rs.1000/-, the activity of hostel accommodation is exempt from GST under Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 dated 28.06.2017 as amended read with CBEC Circular No. 32/06/2018-GST, dated 12.02.2018. However, there is no specific clarification on applicability of exemption on incidental food facility if provided along with principal supply of hostel accommodation especially when no separate charge is recovered from the students.

Para No. 3.5 However, the Authority did not find favour and issued the Advance Ruling holding that:-

(a) 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) 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.

(c) As various services provided by the applicant constitute a Mixed Supply, the rate of GST on whole supply will be the rate of supply which attracts highest rate of GST. As the highest rate amongst services provided is 18%, accordingly, rate of GST on whole supply will be 18% (SGST 9% + CGST 9%).

GROUNDS OF APPEAL

Para No. 4.1.5 Perusal of the above definition implies that a supply of goods and/or services will be treated as composite supply if it fulfills the following three criteria:-

(a) Supply of two or more goods and services together.

(b) Goods or services are naturally bundled, i.e. they are provided together in the normal course of business, and

(c) Value of each supply is not identifiable separately.

Further, it shows that there is no concept whether such incidental supplies results into any better enjoyment of main supply or that whether same are available independently also in the market.

Para No. 4.1.10 The other examples of composite supply commonly available in the business environment are as under:

a) Hotel principally provides room but it has to keep the housekeeping of hotel and room in tidy condition, all bed sheets and linen of room needs to be washed/dry-cleaned, TVs are provided in common areas as well as in rooms, breakfast, gym rooms, swimming pool are also provided as incidental to stay etc. There can be situations where independent breakfast may also be available in the same hotel still it is considered as ‘composite supply’ and that the entire supply is considered as that of supply of hotel accommodation and accordingly classified and taxed. It is never argued that gym facility can be taken outside also or that swimming pool facility can be available outside also or that accommodation facility can be provided without gym, TV, laundry, swimming pool also.

(b) Medical treatment is provided in many hospitals where in many cases the consideration includes rooms for patients as well as attendants, housekeeping of entire premises & rooms, laundry of bed sheets, linen of rooms, supply of food for patients, TV in rooms and common area etc. Here also medical services are considered as principal supply because that is the purpose for which a patient comes to hospital and all other are incidental supplies/facilities. Even though Incidental supplies are individually liable to GST, but medical services as a whole are not made liable to GST being principal supply.

This is inspite of the fact that in many cases the same hospital or other hospitals may not provide medical services under the single package but may be charging separately for doctor services, medicines, rooms etc. and inspite of that it is a settled law that where all these are part of a package then it is an example of composite supply where medical services are principal supply and no GST is payable on entire package.

c) Airlines are providing air travel services along with certain free refreshment/meals during transit and also provides in flight entertainment services on TV Screen etc., keeps aeroplane neat and clean through housekeeping service and also washes and dry-cleaning seat covers etc. These are undisputedly considered as a composite supply where principal supply is that of travel by air and accordingly classified and taxed.

This is inspite of the fact that many airlines are not supplying any snacks/refreshments as a part of package but charges separately for such supply of food. However, those airlines where snacks/ meals are part of ticket price, it is considered as composite supply of air travel service because basically the passenger approaches airline for air travel service and rest are only incidental.

Above criteria and principles can be squarely applied in the present case also where the student comes to hostel principally for availing accommodation service and for providing such service in today’s time, the entire premises are to be kept clean, bed sheet and linen in the room are to be washed/ dry-cleaned, general facilities of TV, Gym and playroom etc. are provided and food facility is also provided. However, the fact remains that student principally wishes to take hostel accommodation and rest are incidental. Hence, a perfect example of composite supply where principal supply is that of accommodation service, This situation is very close to the services of hotel accommodation, hospital, etc. and all elements are same and therefore, same principal needs to be applied. There is no cogent reason to treat hostel accommodation service differently so far as concept of composite and mixed supply is concerned.

Para No. 4.1.16 It is further submitted that the Hon’ble Chattisgarh Authority for Advance Ruling under GST, Raipur in the matter of Kamal Kishor Agarwal, has issued an Advance Ruling No.. STC/AAR/11/2018-Raipur dated 02.03.2019 reported at 2019 (24) G.S.T.L. 496 (A.A.R. -GST) on the similar issue of the ancillary services of food and parking provided to the students by the Charitable Trust along with hostel accommodation. The ARA held as under:

“Hostel run by charitable trust – Providing residence to students on rent – Nominal lump sum amount of 7000 and 6000 per month per bed depending upon number of beds per room, charged for giving residence Ancillary services such as food, parking also provided without charging any amount over and above lump sum charges As per C.B.E. & C. Circular No. 32/06/2018-GST, dated 12-2-2018, hostel accommodation service would not fall within ambit of charitable activities as defined in para 2(r) of Notification No. 12/2017-C.T. (Rate) However, services by a hostel, inn, guest house, dub or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or Lequivalent exempted under Serial No. 14 of said notification. No ambiguity as regards fact that primarily occupants approach Hostel facility providers for having accommodation facility and only when accommodation facility gets ensured, need for other allied facilities arose No other charges collected from occupants for allied services provided.”

Para No. 4.2.1 A perusal of above facts shows that hostel accommodation along with food facility would be treated as composite supply, it is relevant to determine the taxability on such composite supply. Sr. No. 14 of the CGST (Rate) Notification No. 12/2017 dated 28/06.2017 as amended provides that services of rental accommodation having value of supply upto Rs.1000/- per day would be exempted from GST.

RULING

Para No. 6.4.1 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 section 2(30) of 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 2 or more goods or services or combination of both.

(ii) The supply is made in a natural bundle, le. 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.

Para No. 6.4.2 We further note that as per Section 2(74) of the 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.

Para No. 6.5 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 bundied 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. We find that the Rajasthan Authority of Advance Ruling has 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 services like food, gym, housekeeping, play room, cannot be said to arise naturally with the principal service of hostel accommodation and therefore are not bundled naturally with principal supply. Rajasthan Authority of Advance Ruling has placed reliance on the ruling of West Bengal Authority for Advance Ruling in the case of Sarj Educational Centre involving similar facts and circumstances, wherein the applicant was engaged in supplying food and other services, etc and it was held that they are not naturally bundled with the lodging service. All these components are independent of each other. The said ruling has been upheld by the Appellate Authority of Advance Ruling of West Bengal.

ORDER

Para No. 6.8 In view of above facts and discussion, we uphold the Advance Ruling the Rajasthan Authority of Advance Ruling and reject the appeal filed by the appellant.