COACHING SERVICES HELD TO BE COMPOSITE SERVICES: APPELLATE ADVANCE RULING

[Dr. Sanjiv Agarwal]

Coaching services, as an aid or facilitator to main stream education system in India, are popular so much so that these are now considered as a necessary input for students pursuing education at secondary and above level in schools or at higher level who are also preparing for competitive examinations. Coaching services are popular in the streams of commerce (CA, CS, CWA etc), law (LLB, judicial), science (medical, engineering), civil services and the like.

Coaching services could be provided online or offline and as a pure imparting of a coaching or a comprehensive or consolidated service including one or more supply of goods or services (for example, books and publications, printed notes, bags, uniforms, accommodation etc). Coaching services could also be provided directly by the coaching institute or through on outsourced agency on franchise model basis.

In one of the recent Appellate Ruling pronounced by the Appellate Authority for Advance Ruling (AAAR) Rajasthan, it has been ruled that where coaching services are provided by coaching institutes as a bundled supply comprising dominantly of coaching services along with supply of goods / services as a package and a single price is charged, it would be considered as a composite supply under section 2(30) of CGST Act, 2017. It over ruled the pronouncement dated 28.12.2021 of Advance Ruling Authority (AAR) Rajasthan and held that AAR had, infact, erred in concluding that such a supply was a case of mixed supply and that the supply of coaching service by the appellant along with supply of goods/printed material/test papers, uniform, bags and other goods to their students is composite supply and the principal supply is coaching services. 

Advance Ruling [IN RE: M/S. RESONANCE EDUVENTURES LIMITED - 2021 (12) TMI 1298 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN].

Applicant was supplying services of coaching to students which also includes along with coaching, supply of goods/printed material/test papers, uniform, bags and other goods to students. Such supplies are not charged separately but a lump sum amount is charged, the major component of which is imparting of coaching.

The GST rates on goods comprised while providing coaching services are as follows:

1.	T-shirt	5%
2.	Bag	18%
2.	Umbrella	12%
4.	Hoodies sweat shirt	5%
5.	Publications (brochure, study material etc.)	12%

The applicant was charging GST @ 18% on entire coaching services including goods.

Advance Ruling was sought on the following issues and ruling pronounced as under:

Q.1: Applicant (REL) is supplying services of coaching to students which also includes along with coaching, supply of goods/printed material/test papers, uniform, bags and other goods to students. Such supplies are not charged separately but a lump sum amount is charged, the major component of which is imparting of coaching. In such situation, whether such supply of coaching services shall be considered, a supply of goods or a supply of services?

Ans.1: In the present case, the supply is a mixed supply of goods as well as services and attracts highest rate of tax @ 18% (i.e. 9% CGST+ 9% SGST or 18% in case of IGST).

Q.2: If the answer to the aforesaid first question is a supply of service, the applicant would like to know whether such supply of coaching services shall be considered as composite supply under section 2(30) of CGST Act, 2017? If yes what shall be the principal supply as per section 2(90) of CGST Act, 2017?

Ans.2: In the present case, the supply is a mixed supply of goods as well as services under Section 2(74) of GST Act, 2017 and attracts highest rate of tax @ 18% (i.e. 9% CGST+ 9% SGST or 18% in case of IGST).

Q.3: Applicant provides coaching services under a new business model through channel / Network Partners as per sample agreements attached, containing obligations of Applicant (REL) and such channel / Network partners. According to agreement, the channel / network partner provides the services to the students on behalf of Applicant. In such a situation, who shall be considered as supplier of coaching (REL) service and recipient of such service under the agreement?

Ans.3: In the present case, Applicant will be supplier of mixed supply to the students and Network partner will be supplier of service to the applicant. The place of supply in both the cases (i.e. mixed supply to the students and supply of service to the applicant by the channel/network partner) would be determined as per Section (1) of Section 10 of the IGST Act, 2017 in respect of supply of goods and as per clause (b) of sub section (2) of Section 12 of the IGST Act, 2017 in respect of supply of service, as the case may be.

Q.4: Based upon above questions, what shall be the value of service provided by Applicant (REL) to students and by channel / network partner to Applicant (REL)?

Ans.4: Total consolidated amount charged for which Tax invoice issued by the applicant to the student shall be the value of mixed supply by the applicant following the respective arrangement under section 15 of the CGST Act, 2017.

Q.5: Whether the Applicant (REL) shall be eligible to avail Input Tax Credit (ITC) for the supplies?

Ans.5: Yes, as per Section 16 of the CGST Act, 2017, the applicant shall be eligible to take ITC of the GST paid on goods or services used or intended to be used in the course or furtherance of business subject to the conditions as prescribed and the provisions of the Section 17 of the CGST Act, 2017.

Appellate Advance Ruling

[Order No. Raj/AAAR/03/2023-24 dated 23.11.2023 issued by AAAR, Rajasthan;
IN RE: M/S RESONANCE EDVENTURES LIMITED - 2023 (12) TMI 287 - APPELLATE AUTHORITY FOR ADVANCE RULING, RAJASTHAN]

Aggrieved by the Ruling, the appellant filed an appeal before AAAR on following grounds:

1. That the impugned Advance Ruling has misinterpreted the contract of services as per facts and held the subject service of coaching to be the case of mixed supply as defined in 2(74) and not as composite supply as defined under section 2(30) of the CGST Act, 2017. The learned authority has failed to understand and interpret the nature of contract and services involved therein.
2. That the authority has grossly erred in following the settled law of binding precedence by not following its own advance ruling pronounced in the case of — M/s Symmetric Infrastructure Pvt Ltd., Kota vide Ruling dated 02.09.2021, which was based on same facts and circumstances. Further, as per law, the said advance ruling has attained finality as both the parties have not appealed against the said ruling.
3. That the learned authority has erred in following the principles of consistency (consistent interpretation by not following its own interpretation). The Authority has also failed to justify its decision and in both the cases, taking a view which is contrary to each other as well as submissions / interpretations made by Jurisdictional Commissioner. This is demonstrated as follows on the nature of services:

Case	Department view of supply	AAR View of supply
M/s Symmetric Infrastructure Private Limited (02.09.2021)	Mixed	Composite
M/s Resonance Edventures Limited (28.12.2021)	Composite	Mixed

4. The appellant submitted that the learned authority in both the cases has ruled contrary to the Department view and the Department has also interpreted it differently in both the cases. The issue on which advance ruling was sought has therefore, suffered in constitutions interpretation and leads to further confusion in the mind of taxpayer / appellant.

The law relating to composite supply and mixed supply is very clear in the Act itself.

As per Section 2(30) of CGST 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.

As such for a supply to be a composite supply, following criteria need to be satisfied:

1. There should be a supply of two or more goods or services or combination of both.
2. The supply is naturally bundled, i.e. the goods and/or services are provided as a combination in the natural course of business.
3. The individual items (goods and/or services) cannot be supplied separately or exclusively.

As per Section 2(74) of the CGST Act, 2017, the term “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.

It emerges that a mixed supply is two or more independent products or services which are offered together as a bundle but can also be supplied exclusive of each other. In order to identify if the particular supply is a mixed supply, the first requisite is to rule out that the supply is a composite supply. A supply can be a mixed supply only if it is not a composite supply. As a corollary it can be said that if the transaction consists of supplies not naturally bundled in the ordinary course of business, the it would be a mixed supply, classified in terms of a supply of goods or services attracting the highest rate of tax.

Further, as per Section 2 (90) of the CGST 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.

This concept was explained in the Education Guide issued by CBEC (Now CBIC) in the year 2012 as under:

“Bundled Service” means a bundle of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of ‘bundled service’ would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves different treatment as a manner of determination of value of two services for the purpose of charging service tax is different.

The rule is — ‘If various elements of a bundles service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character’

The AAAR noted that question whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices being followed in the area of business to which the services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators some of which are listed below:

1. 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.
2. If 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.
3. 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 nature of incidental or ancillary services. which help, in better enjoyment of a main service. For example 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.
4. Other illustrative indicators, not determinative but indicative of bundling of services in 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 not available separately.
4. The different elements are integral to one overall supply - if one or more is removed, the nature of the supply would be affected.

In the instant case, the students paid a lumpsum amount for the coaching which includes, the coaching services, and student kit (printed material, bag, uniform etc) and the same are not separately charged. As far as providing of printed material/study material/forms are concerned, it was observed that it is an essential and inseparable part of providing coaching.

It also observed that it is a normal practice in the market that all coaching centres/institutes advertise a package for providing coaching services including a student kit which consists of printed material, uniform, bags and other goods. Thus, in the instant case, uniform. bags etc. though can be sold separately, these items contain the logo of the service provider. Thus, on the basis of the business practice being followed in the coaching industry, these were not separable. The main service or principal supply of the appellant is provision of coaching services and not of selling uniforms, bags etc. Normally, no layman will approach any coaching center for buying uniform or bags. Thus, bags were integral part of the coaching services.

Similarly, the student kit was integral to one overall supply i.e. supply of coaching services in the instant case. If one or more is removed, the supply would be affected as removal of the student kit would affect the studies of the students (no printed material or study material or exam papers or course planner and only coaching would definitely affect the studies of the students) and furthermore the nature of the ancillary services/goods in this package is facilitative to the students as well.

It therefore, observed that the amount of the printed material, uniform and bags form a small proportion of the total value of the supply as part of the package. Moreover, when the appellant is not separately selling their bags, uniforms and printed material, it is not difficult to infer that their students enjoy these goods only as a part of composite services of educational/coaching services.

The appellant’s principal supply among the combined supplies, was coaching which is undoubtedly taxable and admitted by the appellant also. The other goods i.e. student kit which includes study/printed material bags, uniforms are ancillary and incidental to the coaching services. No student would choose only the student kit and not the coaching. Here the AAR judgement failed prima facie, because the students cannot opt for only coaching service without receiving the student kit. The students will only pay for principal supply and anyways are going to receive the student kit. The student kit is part of the package of the coaching services and is not sold separately by the appellant or even by their network/channel partner. It is therefore, to be treated as composite supply.

Similar Rulings

The Appellant heavily relied upon the ruling in the case of IN RE: M/S. SYMMETRIC INFRASTRUCTURE PRIVATE LIMITED - 2021 (9) TMI 482 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN; , wherein AAR Rajasthan, few months back only, ruled exactly opposite in a similar factual matrix as follows:

Q.1. Applicant supplies services of coaching to students which also includes along with coaching, supply of goods/printed material/test papers, uniform, bags and other goods to students. Such supplies are not charged separately but a consolidated amount is charged, the major component of’ which is imparting of coaching. In such circumstances, whether such supply shall he considered, a supply of goods or a supply of services?

Ans:  Supply by the Applicant will be considered “ Supply of Service”.

Q.2. If the answer to the aforementioned first question is supply of service, whether such supply shall be considered as composite supply? If yes, what shall be the principal supply?

Ans: Yes, such supply shall be considered as Composite supply, and Coaching service shall be principal supply.

The reliance was also placed on the following Advance Rulings:

The AAAR, Kerala in the matter of appeal filed by IN RE : M/S. LOGIC MANAGEMENT TRAINING INSTITUTES PVT. LTD. - 2021 (7) TMI 809 - APPELLATE AUTHORITY FOR ADVANCE RULING, KERALA ruled as follows:

Issue: The appellant offers hostel facility to its students at a rate of less than Rs. 200/- per day per person including food and at a monthly rate of maximum Rs. 6000/-, Whether there is any tax liability on such hostel fee?

Decision : The coaching/training provided by the appellant to their students along with hostel facility qualifies to be categorized as a composite supply as defined in Section 2(30) of the CGST Act, 2017 As per Section 8(a) of the CGST/SGST Act, 2017, the entire supply is to be treated as falling under “SAC -9992-999293 -Commercial training and coaching services” being the principal supply and will be liable to G5T at the rate applicable for the principal supply.

Issue: Whether there is any tax liability on the appellant for selling text books to its students?

Decision : As held in respect of hostel fees, the sale of text books to the students qualifies to be categorized as a composite supply as defined in Section 2(30) of the CGST Act, 2017, As per Section 8(a) of the CGST/SGST Act, 2017, the entire supply is to be treated as. falling under “SAC - 9992999293 - Commercial training and coaching services” being the principal supply and will be liable to GST at the rate applicable for the principal supply.

8.2 The Authority for Advance Rulings, Maharashtra in the case of Rahul Ramchandran (Inspire Academy) vide order dated 23.05.2022 [IN RE: M/S. RAHUL RAMCHANDRAN (INSPIRE ACADEMY) - 2022 (5) TMI 1292 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA] ruled as follows:

Question: Whether “Nashik Cambridge Pre-school” is entitled for Nil rate of tax as per Serial No. 66 of the Notification No. 12/2017-CT (Rate) dated 28/06/2017, on the supply of some goods to its Pre-school students, without any consideration?

Answer: The applicant will be supplying goods such as: books, stationery, drawing material, sports goods, foods items, milk, beverages to its students without any considerations, as the cost thereof will be covered in the fee charged.

The cost of such goods, are included in the education fees charged by the applicant which would imply that the applicant will be supplying the said goods as part of a composite supply comprising of principal supply in the form of educational services and Since, the necessary books. stationery, drawing material, sports goods, foods items, milk. beverages are supplied to its students as a part of such composite supply wherein the principal supply of service is exempted under Serial No. 66 of the Notification No. 12/2017-CT (Rate) dated 28-6-2017, “Nashik Cambridge Pre-school” is entitled for Nil rate of tax as per Serial No. 66 of the Notification No. 12/2017-CT (Rate) dated 28/06/2017, on the supply of the mentioned goods to its Pre-school students, without any consideration.

Conclusion

The AAAR ruling thus substantially modified the impugned advance ruling by setting the correct precedent. Better late than never. The advance rulings, like in the instant case only weaken the  process of and faith in the scheme of advance rulings and loses its sanctity. Advance Rulings ought to be unbiased, principle based and judicious, besides following the principle of consistency, atleast by the same bench / authority.