ORDER

This is an appeal filed by M/s. Doctors Academy of Educational Society, D. No. 6-114, Kanuru, Penamaluru, Vijayawada (hereinafter referred to as ‘Appellant’) is assessee on the rolls of Assistant Commissioner (ST), Patamata Circle, No. II Division, Vijayawada against the tax orders passed by the Deputy Commissioner (ST) LTU, O/o. JC (ST), No. II Division, Vijayawada (hereinafter referred to as ‘Audit Officer’/for short ‘A.O.’) for the tax period from July, 2017 to February, 2018 under CGST/APGST Act, 2017 in GSTIN : 37AABAD9371M1Z8 vide orders dated 14-6-2018, disputing levy of amount of ₹ 18,67,702/- (CGST of ₹ 9,33,851 + SGST of ₹ 9,33,851). The case is posted for hearing details are as under :

Sl. No.	Date of notice issued	Posted for hearing date	Status of hearing
1.	5-10-2018	27-11-2018	Not Attended
2.	5-12-2018	28-12-2018	Attended on 31-12-2018
3.	3-1-2019	11-2-2019	Not Attended
4.	11-2-2019	28-3-2019	Attended
5.	29-3-2019	30-4-2019	Not Attended
6.	3-6-2019	3-6-2019	Attended
7.	8-7-2019	30-7-2019	Attended
8.	30-7-2019 (final)	19-8-2019	Attended

2. Sri K.V. Subba Rao, Secretary & Correspondent and Authorized Representative of the firm (hereinafter referred to as ‘A.R.’) has appeared on earlier occasions and finally on 3-6-2019 for arguing the case. Finally, the appeal was heard by appellate authority.

Statement of facts :-

3. The appellant M/s. Doctors Academy of Educational Society, Kanuru is an assessee on the rolls Assistant Commissioner (ST), Patamata Circle, No. II Division, Vijayawada.

4. The audit officer recorded in his assessment order that in pursuant to the inspection and resultant verification of the appellant records, the following lapses were observed;

(1)     The service provider had failed to obtain GSTIN on their own and had suppressed the outward supplies.

(2)     They have failed to issue proper invoice under Sec. 31 of GST Act.

(3)     They have failed to pay tax on the amounts received from the students.

5. On the basis of above lapses by the appellant, the AO has interpreted that the appellant has deliberately suppressed taxable outward services supply related turnover and evaded the due tax under CGST/APGST Act, 2017. Therefore, the AO has invoked Section 74 read with Rule 142(1) of CGST/APGST Act & Rules, 2017, and finally determined the underdeclared tax by the appellant as shown below;

Sr. No.	Tax Period	Act	Outward Supplies of services	Tax @ 9%
1	2	3	4	5
1.	July, 2017 to Feb., 2018	CGST	1,05,53,900/-	9,49,851/-
2.	July, 2017 to Feb., 2018	SGST	1,05,53,900/-	9,49,851/-
			Total Tax	18,99,702

6. The AO further asserted that the appellant has involved in service supply of composite supply nature of Commercial coaching along with Accommodation charges & Mess charges. Therefore, the AO opined that the above supply is in composite supply in nature, hence tax shall be levied as applicable to principal supply i.e. Commercial coaching rendered by the appellant, thus levied tax @ 18% (9% of CGST + 9% of SGST).

7. The AO further declared that all the requirement, which are essential to determine a composite supply, were squarely present in the appellant’s transactions of commercial coaching service alongwith Food & Accommodation. Hence, the AO satisfied that these services were offered as a bundled service to the students, hence shall be treated as composite supply.

8. The AO further rejected appellant’s arguments regarding collection of charges separately and declared that 3 (three) services were naturally bundled in the ordinary supply course by the appellant. Thus, the AO has finally levied tax treating as composite of supply for ₹ 18,99,702/- and passed orders under CGST & APGST Acts, dated 14-6-2018.

9. Aggrieved by the above orders passed by the audit officer, the appellant has preferred the present appeal and disputed the levy of tax of ₹ 18,67,702/-.

Grounds of appeal :-

10. The grounds of appeal filed by appellant in the appeal are extracted hereunder;

1. It is most respectfully submitted that the impugned order passed by the Ld. Adjudicating authority is bad in law, illegal and the same has been passed without proper appreciation of the provisions of the APGST Act, 2017 and various contentions raised by the appellant in reply to the show cause notice and the time of personal hearing. The detailed grounds are as under :

2. Denial of ₹ 20 lakhs Threshold limit: GST is applicable only after crossing ₹ 20,00,000/- turnover.

It is humbly submitted that the appellant in reply to the show cause notice as well as during the personal hearing submitted that as per the provisions of sec. 22 of the APGST Act, 2017, Every supplier shall be liable to be registered under the Act if his aggregate turnover in a financial year exceeds ₹ 20 Lakhs. The appellant had no turnover in April, 2017 to June, 2017. Also they are not a registered person under an existing law. Hence, the GST Liability, if any should be computed only after excluding the threshold turnover of ₹ 20 Lakhs. Though Ld. Adjudicating Authority mentioned this contention in his Discussions and finding part of the impugned order, he failed to record any reasons or grounds as to why this benefit is denied to the appellants. He proceeded to confirm the demand on the gross amount received without excluding the turnover of ₹ 20 Lakhs and without assigning any reasons for such disallowance of exclusion of ₹ 20 Lakhs form the total turnover.

It is settled law that an adjudication order must be a speaking order, which should address all the contentions raised by the noticee in reply to the show cause notice. Such unilateral confirmation of demand without assigning any reasons is bad in law and reflects the biased approach of the Ld. Adjudicating Authority. It is to submit that even if assuming that the appellant is providing taxable outward supplies, they are liable to pay GST only after crossing the threshold limit of ₹ 20 Lakhs and the demand should have been made only on the balance turnover after excluding ₹ 20 Lakhs.

3. Denial of input tax credit :

3.1 The appellant in reply to the show cause notice and also at the time of personal hearing submitted that they are entitled for input credit in respect of renting of immovable property service. The appellant has been conducting classes in rented building on which the GST is paid by the owner which is collected from the appellant. If the outward supply of coaching is taxable under GST. Then the appellant should be allowed input credit of the GST paid in respect of renting of immovable property as the said service is used for furtherance of business of the appellant in terms of sec. 16 of the APGST Act, 2017.

3.2 The owner of the building is registered with the department and has been filing GST returns and also issuing tax invoices to the appellant. The appellant also produced the screenshots of GSTR-2A from the GSTN to establish that the supplier of the service has filed the required returns with the department. The appellant is also in possession of the tax invoices issued by the service provider. The total SGST+CGST available as input credit during the disputed period July, 2017 to February, 2018 is ₹ 2,61,000/- However, the Ld. Deputy Commissioner has disallowance the ITC on the ground that the same would be allowed only if the following conditions are satisfied :

• The assessee must be registered as a taxable person under GST.

• He is in possession of tax invoice or any other specified tax paid document.

• It is mandatory to file all the applicable GST returns.

• Tax is actually paid by the supplier.

3.3 It is to submit that in the instant case, the following conditions are satisfied :

• The supplier of the service (Building owner) has paid the GST.

• The appellant is in possession of tax invoice issued by the service provider.

• The appellant has received the services and used for outward supplies

• The appellant has paid the total invoice value including GST to the supplier.

As far as the other two conditions of the appellant being registered with the department and filing the applicable GST returns is concerned, it can be seen that they have obtained a valid GST Registration with GSTIN 37AABAD9371M12Z8 with effect from 19-3-2018. It is to submit that when the department raised a demand for the period before registration, it would be grossly unjustified to disallow the corresponding input credit before registration on pure technical ground that the appellant had not obtained registration and had not filed returns under sec. 39.

3.4 The appellant did not obtain registration as they were under the bona fide impression that they are providing educational services, which are exempted in terms of notification No. 12/2017-CGST (Rate). It is to submit that the concept of input tax credit is not new in GST regime and it was borrowed from the erstwhile central excise and service tax regime.

3.5 Even in pre-GST Regime, when the department disallowed input credit on the ground of not obtaining registration and non-filing of returns, the higher appellate fora held that input credit cannot be denied on such technical grounds. Even in respect of clandestine removal cases, the benefit of input credit was extended as the input credit is a substantive right available to the taxpayers and the same cannot be denied on the ground of non-compliance with procedural issues.

The appellant would rely on the following case law in support of the above contention.

• Formica India Division v. C.C.E. [1995 (77) E.L.T. 511 (S.C.)]

• T.T.K. Pharma Ltd. v. C.C.E. Chennai [2005 (189) E.L.T. 239 (T. – Chen.)]

• Arvind Agarwal v. C.C.E., Delhi [2005 (179) E.L.T. 570 (T. – Del.)]

• DSM2 Anti-Infective India (P) Ltd. v. C.C.E., Chandigarh [2004 (165) E.L.T. 69 (T. – Del.)

• Sitham Fluid Seals Pvt. Ltd. v. C.C.E., Coimbatore [2003 (159) E.L.T. 206 (T. – Chen.)]

• Aditya Industries v. Commissioner of C. EX., Hyderabad [2007 (220) E.L.T. 196 (Tri. – Bang.)]

In the light of above case laws, the ratio of which is also applicable to GST, the appellant submits that denial of input credit on the rent paid for the building is not justified and is not sustainable.

4. Submissions in respect of treating the supplies as composite supply :

4.1 The appellant submitted before the lower authority that they are providing three different services, which are to be assessed under different categories. The appellant submitted that they are collecting (i) Tuition fee (ii) Hostel Accommodation Charges and (iii) Mess charges separately from the students. Appellant submitted that as per Government of India, Ministry of Finance Clarification Vide F. No. 354/17/2018-TRU, dated 12-2-2018, hostel accommodation provided, including by trusts to students with tariff of less than ₹ 1,000/- per day are exempted from GST under Sl. No. 14 of GO No. 588, dated 12-12-2017 issued by the Government of Andhra Pradesh. Further, as per Government of India, Ministry of Finance Clarification Vide F. No. 354/03/2018, dated 8-1-2018, mess charges attract GST rate at 5%.

4.2 However, the Ld. Adjusting authority erroneously applied the provisions of composite supply under sec. 8 of the APGST Act and held that this is a case of bundled service as the services of coaching, accommodation and food in a residential coaching is inseparable. He held that since the dominant nature is determined by the service of commercial coaching, the entire bundle would be treated as educational service and principal supply is providing coaching to the students.

4.3 It is to submit that the above findings of the Ld. Adjusting Authority are totally erroneous. The principles of composite supply are not applicable to the facts of the case. It is to be noted that the concept of composite supply under GST is not new and it is identical to the concept of naturally bundled services prevailing in the erstwhile service tax regime.

4.4 The concept of naturally bundled services was explained in the education guide issued by the Central Board of Excise & customs (Now known as Central Board of Indirect Taxes). The relevant extract of the education guide is reported as under for ease of reference :

‘9.2.4 Manner of determining if the services are bundled in the ordinary course of business

Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices followed in the area of business to which Services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below

The perception of the customer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business.

Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.

The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined which help, in better enjoyment of a main service or laundering of 3-4 items of clothing free of cost per day such service is an ancillary service to the provision of hostel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business are :

(1)     There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.

(2)     The elements are normally advertised as a package.

(3)     The different elements are integral to one overall supply – if one or more is removed, the nature of the supply would be affected.

4.5 It is to submit that in case of the appellant, none of the above four conditions are satisfied. removal of hostel service does not affect the coaching service and it would continue. Removal of mess service does not affect the coaching service as the students can have their food at any other place.

All three services are available separately as the students have the option of going for only coaching and not availing the other facilities.

The three services are not advertised as package.

The appellant is not charging a single price for all three services assessed and the tax should be computed by applying GST Rate for each service. Accordingly, the Accommodation charges would be totally exempted, and the GST Rate Applicable would be 5% on the Mess Charges Collected.

5. Exemption of Accommodation charges under Renting of Residential travelling for use as residence :

It is a fact the “service by way of renting of residential dwelling for use as residence” is exempted from GST under serial No. 12 of the GO No. 588, dated 12-12-2017. It is submitted that alternatively, even if the Accommodation charges in the case does not fall under exemption at Sl. No. 14 of GO No. 588, dated 12-12-2017 (i.e., hostel accommodation provided, including by trusts to students with tariff of less than ₹ 1,000/- per day) the same are exempted under serial No. 12 of the Exemption Notification. Hostel is used as residential dwelling of students and it is rented to the students only for residential purpose. Since, providing of such hostel or accommodation service is nothing but providing residence to the students, it is exempted under Sl. No. 12 of the Exemption Notification.

6. Thus, after assessing the turnover as above, as against the demand of ₹ 9,49,851/- computed at the rate of 9% on gross value of ₹ 1,05,53,900/- for the period from July, 2017 to February, 2018 made in the show cause notice, the appellant is liable to pay an amount of total GST of ₹ 2,92,364/- on gross receipts of ₹ 92,57,100/- during the period from July, 2017 to February, 2017 as indicated in the Annexure. Since the appellant is eligible for input tax credit of ₹ 2,61,000/- on renting of immovable property service as claimed , the net liability would be ₹ 31,364/- only, which is already paid. Copies of the fee receipts and student ledgers are enclosed.

7. It is therefore submitted that the impugned order passed by the Ld Adjudicating Authority is not sustainable.

8. The appellant craves leave to add, modify and amend any of the ground mentioned in this appeal.

Written submissions :-

11. The A.R. at the time of appeal hearing has submitted written submission in support of their contention, which are extracted hereunder;

(A)    Submission against treating the services of appellant as bundled services :

1. The adjudicating authority has treated the services of the appellant, namely coaching, accommodation & mess as bundled services for supply of coaching service to students, though the appellant has issued separate invoice/bills for each service and accounted them accordingly. The primary contention of the adjudicating authority in support of his decision (page 8 to 10 of the order) is reproduced below for kind reference of the Learned Appellate Joint Commissioner (ST)

Section 8 : The tax liability on a composite or mixed supply shall be determined in the following manner namely :-

(a)     A composite supply comprising two or more supplies, one of which is a supply, shall be treated as a supply of such principal supply; and levy collection.

The tax liability on a composite supply shall be determined in the following manner.

A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principle supply. Principles supply would mean supply which forms the predominant element of the composite supply and other parts of the supply are only ancillary or supportive to that predominant part.

Basic features of a composite supply are as follows :

(a)     it should be a supply made by a taxable to a recipient

(b)     such supply should comprise of two or more taxable supplies of goods or services or both or any combination thereof.

(c)     Such combination of two or more supplies of goods or services should be naturally bundled.

(d)     Such naturally bundled goods or services should be supplied in continuation with each other in the ordinary course of business

(e)     One of two naturally bundled supply should be a principle supply.

(f)      Composite supply shall be treated as the supply of principal supply and the applicable tax rate on the entire transaction would be the tax rate applicable on principal supply.

All the basic condition squarely applicable in the present case. The services provider provides residential coaching to the students exclusively appearing for NEET examinations with the facilities of accommodation and food. The assessee is providing services of coaching coupled with other services like providing accommodation and food. This is a case of bundled service as the services of coaching, accommodation and food in a residential coaching is inseparable. such services in the residential colleges are bundled in the ordinary course of business. The assessee offered a bundle of coaching, accommodation an food to their students. Large number of students (service receivers) of such bundle of services reasonably expect such services to be provided as package, then such a package could be treated as naturally bundled in the ordinary course of business.

Therefore, the bundle services will be treated as consisting entirely of such service which determines the dominate nature of such a bundle. In this case since dominate nature is determined by the services of commercial coaching, the entire bundle would be treated as composite supply. Here principal supply is providing coaching to the students. Coaching service forms predominate element of the composite supply which is taxable service chargeable to GST @ 18% As per the provisions of the APGST Act, 2017.

They contended that they are contended that they are collecting tuition fee, accommodation charges and mess charges and giving receipts separately, hence accommodation charges should be excluded from the taxable turnover. The contention of the assessee is not correct as the services provide is dividing the charges in their books of accounts only for account purpose and convenience. They have therefore divide the services with mala fida intention to evade the payment of taxes legitimately due to the government.

In view of the above, the contention of the services provided the accommodation charges collected from the students should be excluded from taxable turnover is not acceptable and tenable and proposed to include all charges received from the students for the taxable July, 2017 to February, 2018 and treated it as composite supply. Supply can also be composite supply even if separate price are charged. Therefore, the commercial residential education services rendered by M/s. Doctors Academy is liable to SGST as discussed in supra. Thus the combined reading of all three services clearly revealed that the services rendered by M/s. Doctors Academy is combination of two or more services which are naturally bundled, hence treated it as composite supply.

2. The appellant submits that the findings of the adjudicating authority are factually incorrect and not in appreciation of true facts.

The appellant has undertaken coaching for NEET students and collected fees from them under separate heads.

(i)      Tuition fee

(ii)     Accommodation charges

(iii)    Mess charges

All the three services are independent and not inter connected. The bills were also issued for each service separately and accounted in books of account accordingly. They are not split at the convenience of the appellant as alleged in the order.

Further the service recipients i.e. students have option for choosing the service. They were not charged for all the services if they have taken coaching, as alleged by the authority charges/fees were collected from students only to the service availed by them. There is no composite or bundled services provided it can be seen from the records, bills and students account that these following services provided to different to different groups of students during the year.

Service provided to students	No. of Students	Total Fee	Tuition Fee	Mess Charges	Accommo-dation charges
Residential	121	58,69,200	2,46,800	36,20,000	20,02,400
Semi-Residential	30	6,73,000	0	6,73,000	0
Short-term	17	5,06,300	8,000	3,04,000	1,94,300
A.C Accommodation	26	20,83,100	3,59,100	8,64,000	8,60,000
Merit Students	23	4,35,900	0	4,09,600	26,300
Dropout (Discontinued)	16	1,48,500	0	1,48,500	0
TOTAL	233	97,16,000	6,13,900	60,19,100	30,83,000

Detailed student wise statement with same sample invoices for each category of students are enclosed for your kind perusal

As can be seen from the above details the services of coaching accommodation, mess provided to students are not bundled but independent to each other. Hence the observation & findings of the adjudicating authority are incorrect and erroneous.

As per the submissions made and provisions of law submitted earlier,

(a)     The services are not composite or bundled services

(b)     The services are independent and separate

(c)     The accommodation service is exempt

(d)     Mess service is taxable @ 5%

(e)     20 Lakhs benefit for basic deduction to be given from coaching fee.

(f)      Input tax credit for GST paid on rent for building to be given.

Para-wise remarks :

12. The Deputy Commissioner (ST) (Int. & LTU), No. II Division, Vijayawada has submitted para-wise remarks against the grounds of appeal, and the same are extracted hereunder;

“I submit herewith the PARAWISE REMARKS with reference to appeal filed by M/s. Doctors Academy, Kanuru, Vijayawada against the orders passed by the Deputy Commissioner (ST), INT., No. 2 Division, Vijayawada, as called for in the reference cited.

M/s. Doctors Academy, Kanuru is engaged in providing Commercial coaching to the students for entrance tests like NEET, EAMCET, etc., and have not been registered with the department. On the basis of specific intelligence collected regarding evasion of GST by M/s. Doctor’s Academy, the Joint Commissioner (ST), Vijayawada-2 division has given authorization to conduct inspection under Sec. 67(1) to the Deputy Commissioner (ST) vide Ref. No. A11/66/2017, dated 19-2-2018.

Accordingly, the Deputy Commissioner (ST), No. 2 Division, Vijayawada has conducted inspection on dated 23-2-2018. During the inspection, it was found that M/s. Doctor’s Academy, Kanuru have not been registered with the department and no GST has been paid for the tax period from 07/2017 to 02/2018.

M/s. Doctor’s Academy providing coaching services to the NEET entrance test to the students which is taxable service chargeable to GST @ 18% as per the provisions of GST Act.

The service provider has furnished the computer generated statements of details of various amounts received from the students from the period from July, 2017 to Feb., 2018 for rendering Commercial Coaching to the students indicating that no GST was paid on the fee amounting to ₹ 1,05,53,900/-.

The turnover of the institute exceeded the exemption limit of ₹ 20,00,000/- during the period from 07/2017 to 02/2018, therefore they are liable to pay GST on the services rendered by them as per the provisions of the GST Act.

Pursuant to the inspection and on the direction of the Deputy Commissioner (ST) INT, Vijayawada-2 division, the Assistant Commissioner, Patamata Circle has issued suo motu registration under both CGST and SGST Act with TMT No. 371800001142. Subsequently, the service provider has obtained registration under GST with GSTIN : 37AABAD9371M1Z8 with effect from 19-3-2018.

M/s. Doctor’s Academy deliberately suppressed taxable outward services with an intention to evade the payment of SGST. Therefore, they were assessed as the Institution engaged in the supply of educational services, the GST is taxable @ 18% (SGST 9% + CGST 9%) as under :

Tax Period	Act	Outward Supplies of services (Rs)	Tax @ 9%
2	3	4	5
July, 2017 to Feb., 2018	SGST	1,05,53,900/-	9,49,851/-
July, 2017 to Feb., 2018	CGST	1,05,53,900/-	9,49,851/-

PARAWISE REMARKS :

(1)     Denial of ₹ 20 lakhs threshold limit : GST is applicable only after crossing ₹ 20,00,000/- turnover :

          The dealer contended that the GST liability should be computed only after excluding the threshold turnover of ₹ 20 lakhs and the assessing authority has confirmed the demand on the gross amount received without excluding the turnover of ₹ 20 lakhs and without assigning any reasons for such disallowance of exclusion of ₹ 20 lakhs from the total turnover.

          The contention of the dealer is not tenable and liable to be dismissed as per Sec. 22 of the GST Act, 2017 which read as under :

          “Every supplier making a taxable supply of goods or services or both in the state shall be liable to be registered under this Act, if his aggregate turnover in a financial year exceeds twenty lakh rupees”.

          It is submitted that as per Section 22 and 15 of GST Act, the GST liability should be computed including the threshold turnover of ₹ 20,00,000/- and no such provision in the Act as contended by the service provider.

(2)     Denial of Input Tax Credit :

          The dealer contended that they should be allowed ITC of the GST paid in respect of renting of immovable property as the said service is used for furtherance of business of the appellant in terms of Sec. 16 of the APGST Act, 2017.

          The contention of the service provider is not correct. They are entitled to get ITC only if they satisfy the below mentioned conditions as per Section 16 of SGST Act, 2017.

(1)     The assessee must be register as a taxable person under GST.

(2)     He is in Possession of Tax Invoice or any other Specified tax paid document.

(3)     It is mandatory to file all the applicable GST Returns.

(4)     Tax is actually paid by the supplier.

          The assessee is not a registered taxable person under GST prior to the conduction of inspection by the undersigned. The service provider has obtained registration under GST with GSTIN : 37AABAD9371M1Z8 with effect from 19-3-2018. This Section clearly says a registered person is only entitled to take credit of Input Tax charged on any supply of goods or services or both to him which are used are intended to be used in the course or furtherance of his business. The assessee was not a registered person during the period of inspection i.e., from July, 2017 to Feb., 2018. Further the service provider has not furnished any original tax invoices issued by the building owner.

          Accordingly the undersigned has rejected the ITC claim made by the assesssee.

(3)     Submission in respect of treating the supplies as composite supply :

          The dealer contended that the adjudicating authority erroneously applied the provisions of composite supply under Sec. 8 of the APGST Act and held that this is a case of bundled service as the services of coaching, accommodation and food in a residential coaching is inseparable. He held that since the dominant nature is determined by the service of commercial coaching, the entire bundle would be treated as educational service and principal supply is providing coaching to the students.

          The contention of the Service provider is not correct as the service provider clearly stated in his statement that they are giving residential coaching to their students only. The three services i.e., Tuition, Accommodation and food are providing to all students in their academy. Further he stated that they are not giving any admission to the day scholars in their academy and also no entry to day scholars in their residential coaching institute.

          Hence, the service provider rendering the above three services to the residential students are to be treated as composite supply under Section 8(1) of APGST Act, 2017 and the same is reproduced hereunder :

Tax liability on composite and mixed supplies :

 “Section 8 : The tax liability on a composite or mixed supply shall be determined in the following manner namely.

 (a) : A Composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and levy and collection.”

          The tax liability on a composite supply shall be determined in the following manner.

          A composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply. Principal supply would mean supply which forms the predominant element of the composite supply and other parts of the supply are only ancillary or supportive to that predominant part.

          Basic features of a composite supply are as follows :

(a)     It should be a supply made by a taxable person to a recipient.

(b)     Such supply should comprise of two or more taxable supplies of goods or services or both or any combination thereof.

(c)     Such combination of two or more supplies of goods or services should be naturally bundled.

(d)     Such naturally bundled goods or services should be supplied in continuation with each other in the ordinary course of business.

(e)     One of two naturally bundled supply should be a principal supply.

(f)      Composite supply shall be treated as the supply of principal supply and the applicable tax rate on the entire transaction would be the tax rate applicable on principal supply.

          All the basic conditions squarely applicable in the present case. The service provider provides residential coaching to the students exclusively appearing for NEET examinations with the facilities of accommodation and food. The assessee is providing services of coaching coupled with other services like providing accommodation and food. This is a case of bundled service as the services of coaching, accommodation and food in a residential coaching is inseparable. Such services in the residential colleges are bundled in the ordinary course of business. The assessee offered a bundle of coaching, accommodation and food to their students. Large number of students (Service receivers) of such bundle of services reasonably expect such services to be provided as a package, then such a package could be treated as naturally bundled in the ordinary course of business.

          In this case since dominant nature is determined by the service of commercial coaching, the entire bundle would be treated as educational service. Hence, the services provided by them are treated as composite supply, here principal supply is providing coaching to the students. Coaching service forms predominant element of the composite supply which is taxable service chargeable to GST @ 18% as per the provisions of the APGST Act, 2017. Therefore the commercial residential education services rendered by M/s. Doctors Academy is liable to GST as discussed in supra. Thus the combined reading of all three services clearly revealed that the services rendered by M/s. Doctors Academy is a combination of two or more services which are naturally bundled, hence treated it as composite supply. Hence their contentions are not tenable.

(4)     Exemption of Accommodation charges under Renting of renting of residential dwelling for use as residence :

          The dealer contended that providing of such hostel or accommodation service is nothing but providing residence to the students. It is exempted under Sl. No. 12 of the Exemption Notification :

          The contention of the service provider that they are collecting accommodation charges and giving receipts separately, hence accommodation charges should be excluded from the taxable turnover and also accommodation service is exempted under Sl. 12 of the exemption Notification. The contention of the assessee is not correct as the service provider is dividing the charges in their books of accounts only for accounting purpose and convenience.

          The contention of the service provider that the accommodation charges collected from the students should be excluded from the taxable turnover is not acceptable and tenable and proposed to include all charges received from the students for the tax periods July, 2017 to February, 2018 and treated it as composite supply. Supply can also be composite supply even if separate prices are charged. Thus the combined reading of all three services clearly revealed that the services rendered by M/s. Doctors Academy is a combination of two or more services which are naturally bundled, hence treated it as composite supply. Hence their contention of accommodation charges should be treated as residential service is not correct and tenable.

(5)     Since, the objections raised by the service provider is found untenable regarding Commercial Educational Services, hence, the appeal is liable to be dismissed.

          It is submitted that all the contentions of the dealers are not tenable and sustainable.

          This is submitted for favour of kind information and orders.”

Discussion :

13. Perused the grounds of appeal filed by the appellant alongside the impugned order passed by the audit officer i.e. Deputy Commissioner (ST) LTU, No. II Division, Vijayawada.

14. The appellant primarily submitted that they have been with an impression that their services are not liable to GST, that’s why they have not obtained GST registration. However, after the inspection, the appellant has been issued with a suo motu registration under GST Act, 2017.

15. The appellant contended that for initial 20 Lakhs turnover scored by the appellant, exemption is to be allowed, and liability arises only after crossing threshold limit of 20 Lakhs. The appellant averred that the audit officer has not recorded in his order, why he has not considered exemption up to 20 lakhs threshold limit.

16. The appellant also questioned non-considering of ITC on the building rental charges paid by them to the building owner, who is a GST registered dealer. The appellant further submitted that they have fulfilled the following requirements to be eligible for ITC;

• The supplier of the service (Building owner) has paid the GST
• The appellant is in possession of tax invoice issued by the service provider.
• The appellant has received the services and used for outward supplies
• The appellant has paid the total invoice value including GST to the supplier.

17. The appellant pleaded that since they have been levied with tax for the unregistered period likewise ITC shall also be allowed on the basis of GST paid by them to the building owner during the unregistered period also.

18. The appellant further argued against treating their supplies as composite supply, submitting that they are collecting Tuition fee, Hostel fee, and Mess charges separately from each student, hence attributing the supplies with composite nature is not bona fide. The appellant also proffered that the 3 different services were not bundled together, but separate from each other, hence cannot be considered as composite supply.

19. The appellant further put-forth the following conditions for becoming a composite supply;

(1)     There shall be a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.

(2)     The elements are normally advertised as a package.

(3)     The different elements are integral to one overall supply – if one or more is removed, the nature of the supply would be affected.

20. Citing the above conditions, the appellant professed that none of the above criteria was present in their case. The appellant also put-forth that all 3 services were available separately, and students can choose whatever service they prefer and have option to leave other services. On the basis of above procedure, the appellant advanced that their services and supply turnover are to be assessed at different applicable rates of tax.

21. The appellant also advanced an alternative contention that accommodation charges so charged are on account of student residential facilities and as per Government Instructions vide Sl. No. 12 of G.O. No. 588, dated 12-12-2017, residential dwelling charges are exempted from GST.

22. Arguing against composite supply attribution, the appellant has put-forth that they have collected charges under different heads namely Tuition fee, Accommodation charges, and Mess charges, mentioning distinctively in invoices as well as in books of accounts. The appellant submitted bifurcated details in the following statement of such receipts;

Service provided to students	No. of Students	Total Fee	Tuition Fee	Mess Charges	Accommodation charges
Residential	121	58,69,200	2,46,800	36,20,000	20,02,400
Semi-Residential	30	6,73,000	0	6,73,000	0
Short-term	17	5,06,300	8,000	3,04,000	1,94,300
A.C Accommodation	26	20,83,100	3,59,100	8,64,000	8,60,000
Merit Students	23	4,35,900	0	4,09,600	26,300
Dropout (Discontinued)	16	1,48,500	0	1,48,500	0
TOTAL	233	97,16,000	6,13,900	60,19,100	30,83,000

23. The appellant has relied on the advance ruling issued by Advance Ruling Authority, Kolkata in Order No. 42/WBAAR/2018-19, dated 26-2-2019 [2019 (22) G.S.T.L. 315 (A.A.R. – GST)] in support of their contentions.

24. The appellant finally averred that the following factor needs to be taken into consideration;

(a)     The services are not composite or bundled services

(b)     The services are independent and separate

(c)     The accommodation service is exempt

(d)    Mess service is taxable @ 5%

(e)     ₹ 20 Lakhs benefit for basic deduction to be given from coaching fee.

(f)      Input tax credit for GST paid on rent for building to be given.

25. The appellant has filed copies of receipts of charges from students and copy of account ledger in support of their contention/claim.

Issue for Adjudication :

(1)     Whether the point of the objection of the appellant that their supply of coaching services shall not be termed as composite supply, is based on any logical basis and legitimate provision or not?

(2)     Whether the appellant contentions with reference to exemption up to threshold limit and allowing ITC on building rental charges are found to be having any sustainable aspects or not?

Analysis :

26. Perused the grounds of appeal along with assessment order passed by the audit officer, and after thorough verification of records, the findings of the appellate authority are stated below;

27. To ascertain any rationality in the contentions of the appellant, the audit officer i.e. Deputy Commissioner (ST) (Int. & LTU), No. II Division, Vijayawada, has been asked to submit his Para-wise remarks against the grounds of appellant and the AO has submitted para-wise remarks by duly stressing with force of findings and strongly reiterated the contents as in the assessment order with relevant explanation on each point of observation, which on a plain reading are found to be dependable and sustainable at the outset.

28. The appellant is definitely at fault for not obtaining registration under CGST/APGST Act, 2017, though he was aware of liability of tax on commercial coaching service. The appellant has been brought to tax net only post inspection after which he has been issued with suo motu registration. The appellant ought to have registered himself at least after crossing threshold limit, but failed to do so, which supports the AO’s finding that the appellant has been wilfully attempted for tax evasion.

29. The core & fundamental friction between the appellant & Department revolves around treating the appellant supplies as composite supply. In this connection, it is relevant here to comprehend the following provisions thoroughly. Hence, those are abstracted here for better understanding;

Section 8 of CGST/APGST Act, 2017 :

“The tax liability on a composite or a mixed supply shall be determined in the following manner, namely :-

(a)     a composite supply comprising two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply; and

(b)     a mixed supply comprising two or more supplies shall be treated as a supply of that particular supply which attracts the highest rate of tax.”

Section 2(30) of CGST/APGST 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;”

Section 2(90) of CGST/APGST Act, 2017 :

“ “principal supply” means the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary;”

30. It is further pertinent here to observe from one of the flyers issued by CBEC, wherein it has been outlined that Educational Institutes, which provide other services like dwelling units for Residence and Food are clearly falls under the category of bundled services, if the charges for Education, Boarding, are collected through a single invoice. The flyer guidelines suggested that such bundle of services will be treated as composite supply and shall be taxed as applicable for principal supply. That means, service that forms the predominant element of bundled service. In education/coaching areas the predominant service has been recognized as education itself, but not lodging/boarding service.

31. This authority also deeply examined the nature of services offered by the appellant, because each individual case needs to be analyzed in the back drop of multiple factors before determining whether such combination of supplies are naturally bundled together in the ordinary course of business or not?. Further, if providing other supplies are incidental to providing principal supply and such other supplies were provided with a purpose of better facilitation of principal supply, then such combination of service, is to be treated as naturally bundled service and falls into composite supply category.

32. Now coming to the present case, it is beyond any doubt that the appellant’s principal supply among the combined supplies, is nonetheless commercial coaching of NEET education, which is undoubtedly taxable and admitted by the appellant also. The other services of lodging and boarding are only incidental whether chosen by the student or not? That means, though students does not choose auxiliary services but the principal supply must be the criteria while charging the students.

33. No student can choose only lodging or boarding without coaching. Here the appellant contentions fails prima facie, because the narration of the appellant that student can choose any one of the three (3) services is clearly found to be on wrong note. The appellant argument that since some students have opted for only coaching service but not received boarding/lodging as day scholars has no relevance to the present dispute, because such students will only pay for principal supply, resultantly such receipts are to be taxable invariably as applicable to principal supply values only even if treated as composite supply.

34. It is further relevant here to observe the guidelines in another flyer issued by CBEC, which reads as below;

“A hotel provides a 4-D/3-N package with the facility of breakfast. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation gives the bundle the essential character and would, therefore, be treated as service of providing hotel accommodation.”c

Further Circular No. 32/06/2018-GST, dated 12th February, 2018 provides as follows :

“Is hostel accommodation provided by Trusts to students covered within the definition of Charitable Activities and thus, exempt under Sl. No. 1 of notification No. 12/2017-C.T. (Rate).

Answer : Hostel accommodation services do not fall within the ambit of charitable activities as defined in para 2(r) of notification No. 12/2017-C.T. (Rate). However, services by a hotel, inn, guest house, club 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 equivalent are exempt. Thus, accommodation service in hostels including by Trusts having declared tariff below one thousand rupees per day is exempt. [Sl. No. 14 of notification No. 12/2017-C.T. (Rate) refers].

Therefore, if the consideration charged by the applicant would only have been for lodging and food facility only, such supply would have been treated as a composite supply.”

35. An inference can be drawn from the above, and squarely applicable to the present nature of dispute by which a strong conclusion can be arrived that the appellant combination of supplies shall nevertheless be treated as composite supply.

36. The appellant’s effort to distinct their supply as other than composite supplies, is not based on any logical/dependable explanations, but seems only put-forth with an intention to minimize the tax liability.

37. The essential ingredients of a composite supply have been indentified as follows;

(a)     Two or more taxable supplies of goods/services or both.

(b)     The taxable supplies should be naturally bundled.

(c)     The taxable supplies should be offered in conjunction with each other.

(d)    One taxable supply should be a principal supply.

38. If we compare the above characteristics with the present case, it is obvious that present case undoubtedly qualifies to be fallen into category of composite supplies. It is also noteworthy here to comment on the AO’s findings, who has discretely observed that the appellant’s transactions clearly liable to be treated as composite supply on analyzing the basic records/documents during the course of inspection. The A.O. also opined that the appellant is resorting to separate the receipts in books of accounts to distract the composite nature of receipts, which could not be countered by the appellant through his explanations.

39. Further, if we decipher scrupulously the following guidelines of CBEC regarding bundle of services and composite supply, it is nonetheless apparent that the appellant supplies certainly fall into composite supply category;

Manner of determining if the services are bundled in the ordinary course of business

Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below –

• The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably except such services to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business.
• Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.
• The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that 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. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business.
• Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are –
  • There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.
  • The elements are normally advertised as a package.
  • The different elements are not available separately.
  • The different elements are integral to one overall supply – if one or more is removed, the nature of the supply would be affected.
• No straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business. Each case has to be individually examined in the backdrop of several factors some of which are outlined above.

40. Thus, it is unambiguously established that the combination of supplies of the appellant needs to be termed as composite supply and liable to be taxed at the rate of principal supply i.e. Commercial Coaching.

41. The other contention of the appellant regarding exemption up to threshold limit receipts i.e. 20 lakhs has also been analyzed and it is to be stated that such exemption is available to the Act abiding suppliers, who voluntarily registers themselves after crossing threshold limit. But, in cases like present appellant, tax will be levied on the receipts from the starting of business, since they have failed to get registered themselves on their own after crossing threshold limit, even though the supply is clearly known to be taxable.

42. It is also noteworthy here to observe that the appellant has not submitted the details of initial 20 lakhs turnover, as to how and when they have scored the 20 Lakhs turnover. Since, the appellant’s transactions are service to the group customers of commercial coaching, as per time of supply rules, there is every possibility that the appellant might have scored 20 lakhs turnover on the 1st day itself, Therefore, the liable date for registration would become 1st day of supply, hence, the appellant automatically will be liable to pay tax from 1st day itself. Thus, 20 lakhs threshold limit does not arise. As such, non-consideration of exemption of 20 lakhs initial turnover by AO need not be interfered.

43. Regarding the appellant claim of ITC, the AO has recorded certain specific remarks, which on a fundamental reading are found to be logical and legitimate. The AO has asserted that; (a) The appellant must have been a registered taxable person, (b) he must be in possession of tax invoice, and (c) such dealer ought to have filed all GST returns. However, in the present case, none of the above criteria satisfied, hence ITC shall not be eligible to the appellant. The AO’s declaration in this regard found to be based on valid provisions of the GST Act.

44. Regarding the other contemplation of the appellant that accommodation has been provided as dwelling units for students, hence to be treated as meant for residential purpose and exempted vide Government notifications, has also been analyzed and it is to be rebutted that since all the supplies have been established as bundle of services and being considered as composite supply, no further explanation/answer is found essential on this aspect, since total receipts are liable to be taxed under composite supply.

Conclusion :

45. On the whole, it is apparently perceived from the appellant’s transactions and services supplied that the appellant involved in a main i.e. principal supply and other supplies, which are incidental to the principal supply. The principal supply is must for every student, as such the combination of total supplies, are to be fallen under bundled services classification, which makes it a composite supply undoubtedly. Therefore, the appellant postulations against treating as composite supply are termed to be not viable and not factual. The other contentions of the appellant regarding threshold limit of 20 lakhs turnover exemption and ITC eligibility are also thoroughly analyzed, but found to be not admissible. So the levy of tax by AO need not be interfered with and to be upheld as legitimate, and the appeal is dismissed by confirming the tax so levied by the audit officer.

46. In the result, the assessment & levy of tax by the audit officer are confirmed, and the appeal stands dismissed on whole.