GST applicable on Supply of Food Along with Accommodation to Medical students: AAR

The applicant M/s. Healersark Resources Private Limited are in the business of providing boarding and lodging to the students undergoing training under healthcare related vocational program. They are desirous of ascertaining whether the service provided by them falls under serial no. 14 of Notification No. 12/2017 dt:28.06.2017 as they are charging only Rs.300/- per day. Hence the application.

Questions raised:

1. What is the applicable GST SAC and GST rate for the supply of service described in this application?

2. Is it a composite supply or a mixed supply?

3. Whether the service is exempted vide Notification No. 12/2017 – CT(Rate) dated: 28.06.2017?

Ruling:

The applicant states that he is providing lodging and boarding to students undergoing training under healthcare related vocational program under Deendayal Upadyay Grameen Kaushalya Yojana (DDU-GKY) by charging Rs.9000/- per candidate per month; of which Rs.3500/- is towards rent for accommodation at fixed cost and Rs.5500/- towards food on head count/actual number of candidates.

According to the applicant, the chapter heading ‘9963’ at serial no. 14 of Notification No. 12/2017 dt: 28.06.2017 describes such services for residential or lodging purposes and exempts the same if the value of supply of a unit of accommodation is below Rs.1000/- per day. The applicant states that he is charging only Rs.9000/- per month which amounts to Rs.300/- per day for both accommodation and food as a composite supply. Further that the supply of food is ancillary to accommodation and accommodation being the principle supply, hence he claims that their service is exempt from tax in view of this entry.

Composite supply is defined in the CGST Act in Section 2(30) as follows:

“Composite supply” means a supply made by a taxable person to a recipient 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.

As seen from the above definitions a composite supply is essentially a naturally bundled supply where two or more different supplies invariably exist along with each other.

A naturally bundled supply should possess the following attributes ( as mentioned in Education Guide on Taxation of Services published by CBE & C on 20.06.2012 at Para 9.2.4 ):

a. There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.
b. The elements are normally advertised as a package.
c. The different elements are not available separately
d. The different elements are integral to one overall supply – if one or more is removed, the nature of supply would be affected.

Further the illustration in the definition clarifies the context of composite supply. As seen from the illustration the supply of service i.e., insurance and goods go alongside each other.

The Hon’ble Supreme court of India in a catena of case law has ruled that illustrations in a statute are part of the statute and help to elucidate the principle of the Section (Dr. Mahesh Chandra Sharma Vs Smt. Raj Kumari Sharma – AIR 1996 SC 869). Therefore a composite supply should be similar to a supply mentioned in the illustration to the definition in Section 2(30), where two or more taxable goods or services are supplied along with each other to constitute a composite supply.

As seen from the information serviced by the applicant, the rent is fixed at the rate of Rs.3500/- whereas the food is charged at Rs.5500/- as per the head count or actual number of candidates. This means that the price is variable to the extent of food supplied and this is not a single price the customer pays, no matter how much of the package is actually received. For the above reason, the two supplies are not integral to one another.

The Hon’ble High Court of Kerala in the case of Abott Health Care Pvt. Ltd., (2020) 74 GSTR 37 (Kerala) held that a composite supply must take into account supplies as affected at a given point in time on “as is where is” basis. In the present case this condition is not fulfilled. Therefore there are two distinct supplies one for accommodation and the other for food.