#GSTCase-70-In case of Composite Supply, wherein value of goods and services supplied are shown separately, goods and services would be liable to tax at the rates as applicable to such goods and services separately-(AAR-Kerala)- Judgement ignores difference between Composite and Mixed Supply
CA Arpit Haldia
Kerala Forest Development Corporation Ltd.  104 taxmann.com 42 (AAR -KERALA)
What is the Tax liability for tile tour packages, which are provided to guests by way of separate services like accommodation, serving food and beverages, service of authorized guides, trekking accessories etc against separate invoices.
Applicant offered tour packages at Munnar, Gavi, Nelliyampathy and Arippa. Presently, charges for tour package depends upon the type of accommodation choose by the customers.
Applicant intended to change the modus operandi by issuing separate invoices to customers/guests for the services availed by them, instead of giving as packages. The services offered under different category are;
(a) providing accommodation;
(b) preparing and serving food and beverages;
(c) providing service of authorized guides;
(d) providing trekking accessories;
It is pointed out that these services are individually available to the guests, as such the guests have right to choose anyone of the services. If the guests choose all the services, they will provide separate invoice.
- Contention of the Appellant
The contention of the Applicant was that the charges for accommodation per guest is below threshold minimum to levy tax. For the supply of food they would charge 5% GST and for providing service of authorized guide, the applicant proposes to collect 18% GST.
- Observation by AAR
Circular No.47/21/2018-GST dtd.08-06-2018 clarifies that taxability of supply would have to be determined on a case to case basis looking at the facts and circumstances of each case. Where a supply involves supply of both goods and services and value of such goods and services supplied are shown separately, goods and services would be liable to tax at the rates as applicable to such goods and services separately.
Applicant can charge Tax Rate on Accommodation Services as per SAC 9963. Since the Tariff Rate of the Rooms is less than Rs 1000, therefore supply of food to guests would be attracting 5% GST and service of authorized guides would be taxable at the rate of 18%.
In case where a supply involves supply of both goods and services and the value of such goods and services supplied are shown separately, the goods and services would be liable to tax at the rates as applicable to such goods and services separately.
- Services of Tour Operators are Composite in Nature
Services of Tour Operators are Composite in nature and as they are composite in nature, tax rate should be charged according to SAC 9985 and allowing them to charge respective tax rate as applicable to goods and services if value of goods and services supplied are shown separately on the invoice would then defeat the basic theme of GST.
- Can Composite Supplies be treated as Mixed Supplies by showing the respective values of goods and services separately
Mere fact that respective goods and services are available separately would not make the supplies as individual supplies. Question goes to the basic roots of the GST. Whether a supplier be allowed to treat a composite supply as a mixed supply as per his own wishes?
- A supply can be classified as mixed supply only when it is not a composite supply
Composite Supply is treated as supply of principal supply. The first condition of being a mixed supply is that the supply should not be a composite supply. In case a supply is mixed supply and unless supplier charges respective tax rate as applicable to goods and services on value of goods and services shown separately on the invoice, mixed supply is treated as supply of that particular supply which attracts the highest tax rate.
Imagine in a contract of Supply of goods taxable at the rate of 28% Tax and 160% Cess at inclusive freight basis. Value of Goods is 100000 and Freight is Rs 25000. Ideally tax rate on Rs 125000 should be @ 28%+160% but judgement allows by showing value of goods and freight separately on the invoice, respective rates of goods and freight can be charged. That merely by showing value of the goods and services separately on the invoice, tax on goods and freight would be levied at respective rates and that would override provisions of Section 8 of CGST Act which provide that in case of composite supply contracts, tax would be levied at the tax rate of principal supply. This is against the basic principles of GST Law.
- CBEC Circular creates confusion and impacts classification of composite and mixed supply
It would be apt to mention here that CBEC Circular No. 47/21/2018-GST Dated 8th June 2018 relied in the judgement which also clarified on the same lines of the Judgement but different from the provisions of the Statue:
Question: – How is servicing of cars involving both supply of goods (spare parts) and services (labour), where the value of goods and services are shown separately, to be treated under GST
2.1. The taxability of supply would have to be determined on a case to case basis looking at the facts and circumstances of each case.
2.2 Where a supply involves supply of both goods and services and value of such goods and services supplied are shown separately, the goods and services would be liable to tax at the rates as applicable to such goods and services separately.
The intention of the Act is pretty clear that if a transaction is in the nature of composite supply, tax would have to be levied at the rate of principal supply. Only if a supply is not a composite supply, then only the supply would be classified as mixed supply. However, judgement and the Circular provides a completely different view and allows the parties to override the provisions of CGST Act by mutual contract which is legally incorrect.