Bundle Supply - GST Ready Reckoner - GST

Bundle Supply The concept of composite supply under GST is identical to the concept of naturally bundled services prevailing in the existing service tax regime. The concept of the bundle services define in the explanation to section 66F of Services tax Finance Act, 1994. This concept has been also explained in the Education Guide issued by CBIC in the year 2012 as under para 9.2 - Para 9.2 - Bundled service means a bundle of provision 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 differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different. Two rules have been prescribed for determining the taxability of Bundle services Two rules have been prescribed for determining the taxability of such services in section 66F(3) of the Act. These rules, which are explained below, are subject to the provisions of the rule contained in section 66F(2) . First Rule - Services which are naturally bundled in the ordinary course of business The rule is If various elements of a bundled 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 Illustrations - 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. A 5 star hotel is booked for a conference of 100 delegates on a lump sum package with the following facilities: Accommodation for the delegates Breakfast for the delegates, Tea and coffee during conference Access to fitness room for the delegates Availability of conference room Business centre A CA may offer income tax consultancy in addition to auditing services. An airline provide movie or catering on board. Transport of goods plus cash collection as composite services. Coaching services with books, uniform,bags etc. Boarding School provide services of education along with residency of student and food, provide in single price. As is evident a bouquet of services is being provided, many of them chargeable to different effective rates of tax. None of the individual constituents are able to provide the essential character of the service. However, if the service is described as convention service it is able to capture the entire essence of the package. Thus, the service may be judged as convention service and chargeable to full rate. However, it will be fully justifiable for the hotel to charge individually for the services as long as there is no attempt to offload the value of one service on to another service that is chargeable at a concessional rate. Second Rule - Services which are not naturally bundled in the ordinary course of business The rule is If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax. Illustrations - A house is given on rent one floor of which is to be used as residence and the other for housing a printing press. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case renting for use as residence is a negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property. 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 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 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. The above principles explained in the light of what constitutes a naturally bundled service can be gainfully adopted to determine whether a particular supply constitutes a composite supply under GST and if so what constitutes the principal supply so as to determine the right classification and rate of tax of such composite supply.