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September 17, 2020

Applicant engaged in wellness resort is not eligible to get the benefit of tax exemption under GST

by CA Shivam Jaiswal in GST, Legal Court Judgement

Applicant engaged in wellness resort is not eligible to get the benefit of tax exemption under GST

Wellness facilities provided by naturopathy centre’s are not exempted from Goods & Services Tax

Under GST, the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, exempts certain supply of services from the levy of GST under Notification No. 12/2017- Central Tax (Rate). One such exemption from the levy of GST is provided under Entry 74 which pertains to Services by way of-

a. health care services by a clinical establishment, an authorised medical practitioner or para-medics

b. services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above

However is such exemption available to any naturopathy resorts performing yoga exercises, ayurvedic treatments, massages, acupuncture, etc prescribed by the resort doctors for each individuals or will it be treated on the same level as that of a hotel stay and about an 18% levy. Let us refer to the case of Oswal Industries ltd.( M/s. Nimba Nature Cure Village) (GST AAR Gujarat) where a similar issue was raised before the Gujarat Authority of Advance Ruling (AAR)

Facts of the Case and Submissions by the Applicant:-

  • The applicant M/s Oswal Industries ltd (M/s Nimba Nature Cure Village) by their application for Advance Ruling submitted that they were a body corporate registered under GST.
  • Nimba Nature Cure Village was a unit of M/s. Oswal Industries ltd.
  • The applicant stated that they provided different types of wellness facilities at Nimba such as Naturopathy, Ayurveda, Yoga and meditation, Physiotherapy and Special therapy.
  • The applicant stated that some of the hallmarks of corporate wellness program at Nimba were physical activity, tobacco cessation, stress management and back care programs. Such wellness facilities were provided for different types of diseases.
  • The applicant stated that such wellness facilities were provided with the help of highly qualified professionals’ doctors in the field of naturopathy, researchers, and support staff.

The Applicant put forward the following question for advance ruling:

Whether the applicant was eligible to get the benefit of entry No.74 of exemption Notification No.12/2017-Central Tax (Rate) dated 28.06.2017?

Observations of the AAR on whether the services provided by the applicant were composite in nature or mixed?

  • The packages offered by the applicant, as evident from their website indicated that the therapy offered by them was strictly on a residence basis.
  • The same was evident from the fact that the consideration is solely dependent on the type of room opted by the customer.
  • The total consideration revolved around two factors viz. 1) the type of room and 2) whether single or double occupancy.
  • This fact created an impression that stay was mandatory and the charges of stay depended on the above factors.
  • Thus, AAR observed that the element of accommodation became the primary activity in the entire package.
  • In all the packages, 3 types of rooms were offered either on a single occupancy basis or double occupancy basis. The rates of the room per night were specified, which formed the major part of the consideration towards the selected package.
  • Further, other charges were also being recovered. Transport charge, colon therapy charge and Attendant (Included food and accommodation) charges were being collected by the applicant.
  • Thus, examination of the packages indicated that more than one services were being rendered under the programme, which can be identified as under:

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1. Accommodation – The programme cannot be executed without the check-in rooms made available by the applicant. Since accommodation was being provided to the customers, the same would be covered under the head ‘Room or unit accommodation services provided by Hotels, Inn, Guest House, Club and the like’. (Sub-heading 996311)

2. Food – The programme also involves supply of food to the customers during the stay-in period. Since food and other room services are also provided along with it, the same would be covered under ‘Services provided by Hotels, Inn, Guest House, Club and the like including room services, takeaway services and door delivery of food’.(Sub-heading 996332)

3. Therapy – Various therapies are provided to the class of persons who check-in the chosen type of room and avail of the food services. Under this category, human health services are also being provided by the applicant which would be covered under ‘Other human health services including homeopathy, unani, ayurveda, naturopathy, acupuncture and the like’.(Sub-heading-999319)

  • In the above circumstances, the issue of composite supply, as defined as per Section 2(30) of the CGST Act, 2017 came into play.
  • As per Section 2(30), “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.
  • For instance, 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;
  • ‘Mixed supply’ is defined as per Section 2(74) of the CGST Act, 2017.
  • According to Section 2(74), “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.
  • For instance, 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.
  • In view of the above, it was to be examined whether the supply is covered under Composite Supply or Mixed Supply.
  • AAR observed that the entire package consisted of 3 components and the packages would not be possible without any one of the 3 components. In other words, the packages offered by the applicant were naturally bundled and would be aptly covered under the definition of Composite Supply.
  • Further, the principal supply would be the accommodation services since the therapy can in no way be administered without accommodation.
  • In fact, there was no option available for the customer to avail the wellness package without opting for the accommodation.
  • Thus, AAR found that the accommodation service attains the nature of the principal supply and the other two components attain the nature of ancillary services.

Observation of the AAR on classification and tax liability of the services provided by the applicant

  • Since it was established that the services provided by the applicant were a ‘composite supply’ of services, AAR was required to examine the classification and tax liability on the same.
  • For this purpose, AAR referred to Section 8 of the CGST Act, 2017
  • According to Section 8, the tax liability on a composite or a mixed supply shall be determined in the following manner:-
  • 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
  • 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.
  • In view of Section 8(a), it could be seen that a composite supply comprising of two or more supplies, one of which is a principal supply, shall be treated as a supply of such principal supply.
  • Therefore, in the instant case, the composite supply of services would be treated as a supply of accommodation service falling under Heading 9963 and specific heading 996311 (Room or unit accommodation services provided by Hotels, Inn, Guest House, Club and the like) as per Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017.
  • The supply of service namely ‘Accommodation food and beverage services’ was mentioned at Entry No 7 of Notification No. 11/2017-Central Tax (Rate).
  • According to Entry No. 7(vi), Accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of a unit of accommodation of Rs 2500 and above but less than Rs 7500 per unit per day or equivalent will be taxed at 18%(9% SGST + 9% CGST)
  • According to Entry No. 7(viii), Accommodation    in hotels including five star hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes having declared tariff of a unit of accommodation of Rs 7500 and above per unit per day or equivalent is taxable at 28%(14% SGST + 14% CGST)
  • The ‘composite supply’ of service provided by the applicant would be covered under Entry No. 7(vi) and 7(viii) of Notification No.11/2017-Central Tax (Rate).
  • The notification was amended a few times vide Notification No.13/2018-Central Tax (Rate) dated 26.07.2018 and Notification No.20/2019-Central Tax (Rate) dated 30.09.2019, where the rates of GST were altered. These amendments will have to be taken into consideration by the applicant, while discharging their service tax liabilities.

Observation of the AAR on whether exemption was available under Notification No.12/2017-Central Tax (Rate) dated 28.06.2017

  • The question for advance ruling raised by the applicant, was whether the applicant was eligible to get the benefit of entry No.74 of exemption Notification No.12/2017-Central Tax(Rate) dated 28.06.2017?”
  • As per entry No.74, services by way of:-
    • health care services by a clinical establishment, an authorised medical practitioner or para-medics
    • services provided by way of transportation of a patient in an ambulance, other than those specified in (a) above
  • Therefore, the said services, which were classified under Heading 9993, were exempt from payment of GST.
  • However, the supply of services provided by the applicant, which is a composite supply, has been classified under Sub-Heading No.996311 under ‘Room or unit accommodation services provided by Hotels, Inn, Guest House, Club and the like’.
  • The exemption at Entry No.74 of Exemption Notification No.12/2017-Central Tax(Rate) dated 28.06.2017 was applicable to services falling under the Heading 9993.
  • However, the nature of services provided by the applicant was covered under the Sub-Heading 996311.
  • Therefore, AAR concluded that the exemption available at Entry No.74 of Exemption Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 was not applicable to the applicant.

In conclusion, benefit of entry No.74 of exemption Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 is not available to taxpayer providing services under Sub-Heading 996311. It is only available to the taxpayer providing services under Heading 9993. Wellness facilities provided by naturopathy centre’s are not exempted from Goods & Services Tax (GST). Applicant engaged in provision of different types of wellness facilities such as naturopathy, Ayurveda, yoga and meditation, physiotherapy and special therapy is not eligible to get the benefit of tax exemption based on the provision of law.

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