GST Update No 226 on tax implication on supply of food and accommodation to students

Although, the advent of GST has brought a paradigm shift in the sector of Indirect Taxation, the question regarding applicability of GST on education sector is a matter of grave concern for all. However, the legislation has retained the concept of “bundled services” from erstwhile GST regime, the question related to supply of food and accommodation services provided to students is a matter of discussion till date. On similar lines, one of the cases was reported before Telangana AAR in the case of M/S HEALERSARK RESOURCES PRIVATE LIMITED. The decision imparted in this case is the subject matter of our present update.

The applicant is engaged in the business of providing boarding and lodging to the students who are undergoing training under healthcare related vocational programs. Following question in this respect were raised before AAR:
1.     Applicability of GST SAC and GST Rate on above stated supply of service
2.     Whether it is a composite supply or mixed supply?
3.     Whether the service is exempted vide Notification No. 12/2017-CT (Rate) dated 28.06.2017.

The applicant submitted that they are charging Rs. 9000/- per candidate per month for lodging and boarding services provided to students who are undergoing training under vocational program out of which Rs. 3,500/- is towards rent and Rs. 5,500/- is for food on basis of head count. It was further submitted that they are eligible for exemption under Notification No. 12/2017 dated 28.06.2017 since the value of supply of accommodation is below Rs. 1,000/- per day. It was contended that Rs. 9,000/- is charged per month which amounts to Rs.300/- per day and be treated as composite supply. Further, it was argued that since the supply of food will be ancillary and accommodation is principal supply, service would be exempted being a composite supply.

The AAR placed reliance on the decision of Apex Court in the case of Dr. Mahesh Chandra Sharma V/s Smt. Raj Kumar Sharma- AIR 1996 SC 869, wherein concept of composite supply was explained. Further, looking onto the facts, it was held that rent is fixed at the rate of Rs. 3,500/- whereas food is charged at Rs. 5,500/- as per the head count. This demonstrates that the price is variable to the extent of food supplied. No single price is charged from the customer no matter how much of the package is actually received. Hence, the above two supplies are integral part of one another. Reference was drawn to the decision of Kerala High Court in the case of Abott Health Care Pvt. Ltd. wherein it was held that the two supplies are composite supply since they are affected on “as is where is” basis. In the present scenario the conditions are not fulfilled and hence, the supplies are distinct supply. Therefore, it was clarified that the two supplies are distinct supplies wherein supply of accommodation is exempt and on supply of food, GST is leviable.

It is pertinent to mention here that there are divergent rulings and views delivered on the subject matter under consideration. To illustrate, Rajasthan AAAR in the case of M/s Mody Education Foundation wherein it was held that supply of food along with hostel accommodation service is not naturally bundled and therefore, be treated as mixed supply and chargeable to highest rate of tax. Similarly, in the case of M/s Sarj Educational Centre, West Bengal AAAR upheld the same view-point, treating it as mixed supply. Although, it is well settled law in law that the advance rulings are binding only on the assessees who sought it, yet these contradictory rulings lay down a foundation for the revenue department to initiate action against the assessees. The need of the hour is that consistency is maintained while pronouncing advance rulings so that unwarranted confusion could be avoided.

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GST Update No 226 on tax implication on supply of food and accommodation to students

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