Can Accommodation Services Be An Inter-state Supply.
Accommodation services are under the purview of tax net since a long time It was a handsome source of revenue under service tax law and the legacy is continuing in refined manner,even under GST law.
Accommadation service is the service to provide a place to live or stay, it has been introduced in the service tax net since positive list regime.The same is carried forward in the GST law also.Under GST law there is classification of services and accordingly accomdation services have been classified into the various categories according to the practice prevailing in the industry.
Accommodation services have been classified under HSN/SAC 9963 wherein the further classification ia as under.
Service Tariff Code (HSN/SAC)
Description of Service
Room or unit accomdation services provided by Hotels, INN,Guest House , club, etc
Camp Site Services
Recreational an vocational camp services
Room or unit accomdation services for students in student residences
Room or unit accomdation services provided by Hotels, Capms, Paying Guests, etc.
Other room or unit accomdation services not specified else where
3.Nature of supply
Accommodation services are generally provided at the premises used for providing accomdation services. Since the GST is destination based consumption tax, therefore, the place of supply of accomdation services is the place where the property used forproviding such services is situated and the nature of supply is intra – State supply. However, before reaching at the conlusion we need to understand the relevantprovisions of the GST law.
The relevant provisions of law determaining the nature of services are coverd under the provisions of section 8 and setion 12 of the IGST Act,2017 read together.
According to setion 8(2) of the IGST Act,2017 supply of services where the location of the supplier and the place of supply of services are in the same State or the same Union territory shall be treated as intra-state supply.
According to setion 12(3)(b) of the IGST Act,2017, the place of supply of service by way of lodging accomdation by a hotel, inn, guest house ,home stay , club or campsite, by whatever name called and including a house boat or any other vessel shall be the location at which the immovable property or boat or vessel, as the case may be, is located or intended to be located.
Thus, on a combined reading of the above two provision,one can easily figure out the nature of supply of accomdation services is intra-State supply.
4.Whether accomdation services can be an inter-State supply
Although by referring to the provisions cited above, it can be inferred that the basic philosophy of implematon of destination based consumption tax goes in line of taxing accommodation services as intra-State supply. Howeve, the following provisions of IGST Act,2017 are worth noting-
(a)Provisio to section 8(2) : The said provision reads as –“the intra-State supply of services shall not include supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit”.
(b) Section 7(5) (b) : Supply of goods or services or both to or by a Special Economic Zone developer or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the course of inter –State trade or commerce.
The direct implication of the above provisions on accomdation services is that the said services if provided to any unit in SEZ shall not be considered as intra-State supply. In other words, it shall be considered as inter –State supply.
Hence, it can be fairly concluded that the accommodation services, when provided to any unit in SEZ or by unit in SEZ, evolve a concept divergent to the basic intent of the GST law of taxing the services on a consumption basis.Now the question that flashes in the minds is the need of such a provision. The purpose of the introduction of such provisions can be understood with the provisions of section 16 of the IGST Act, 2017
The implication of sections 7(5), 8(2) and 16 of the IGST Act, 2017
The implication of sections 16 and 8(2) can be understood i two parts. In one part the supplier of services is outside the SEZ and in another part the supplier of services is in the SEZ. The impact on both the transaction shall be different.
(i) Supply to SEZ – Zero- rated supply
Accordingly to section 16 of the IGST Act, 2017, “zero-rated supply “ means any of the following supplies of goods or services or both namely:- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
The provision stated in section 16 clearly mandates that the accommodation services provided to SEZ developer or to a unit in SEZ shall be treated as zero-rated supply. To put it differently, the same shall be considered at par with the export of services. Thus, such services shall fall under zero-rated supply under GST law and shall be eligible for benefits attributed to zero-rated supplies including a refund of taxes paid on the relevant, services, subject to the other provisions of GST law.
(ii) Supply by SEZ-Inter-State-supply
On a close reading of section 8(2) and section 16 as mentioned above, it can be inferred that accommodation services provided by the unit in SEZ to any person outside SEZ shall be treated as inter-State supply. Meaning thereby that the said services provided by SEZ shall be considered as inter-State supply and IGST shall be considered as inter-State supply and IGST shall be chargeable on the same.
(iii) Supply within SEZ–Zero–rated supply
Since in case of supply within SEZ the recipient shall always be in SEZ, therefore, such supply shall always fall within the meaning of zero-rated supply. Hence, supplies within SEZ shall be eligible for benefits at par with the benefits available to zero-rated supply.
Accommodation services are generally taxed as intra-state supply, however, the law contains the relevant provisions for treating the same as inter-state supply also. Thus, before reaching any conclusion about the place of supply, it is essential to refer the law as a whole and relevancy of sections 7(5) and 8(2) cannot be undermined.