TAXABILITY OF MINI-BAR SALES IN HOTEL ROOMS

[Dr. Sanjiv Agarwal]

As per Para 6(b) of Schedule II of CGST Act, 2017, supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.

The revenue authorities often treat supply of mini-bar served in guest rooms as composite/bundled supply with hotel and accommodation services (SAC-9963) as per Section 2(30) of CGST Act, 17. Accordingly, the GST on the supply of mini-bar is charged at the higher rate treated as composite / bundled services with hotel and accommodation services.

However, the actual position is that provision of supply of food by way of a mini-bar is an activity where the guest is not consuming the services of the restaurant, as for taxation, service is to be provided in/at the restaurant and rooms cannot be considered as a restaurant. The services of mini-bar are not provided in any package form whatsoever, and separate price is charged for each service, therefore, it cannot be regarded as bundled service from any view point. Moreover, the bills are also raised separately as these are provided as separate services which are not connected to each other.

The tax authorities claim that supply of food by way of a mini-bar is an activity where the guest is not consuming the services of the restaurant therefore these services not to be classified as Restaurant services. For availing these services provided by the tax payer, it is the primary condition that the service receiver also receive the hotel accommodation services from the tax payer therefore these services are to be treated as composite / bundled services and liable to higher rate of Tax.

Mini-bar is a facility provided in hotel rooms which stocks few packed / sealed food items and beverages for consumption by the guest as per his choice and at whatever time he chooses to do so. Based on actual consumption, guest is billed at the time of check-out for the sale of food articles from the mini-bar. This supply of food / beverages is also provided by hotel and may be consumed in room or otherwise. The facility of Mini-bar does not involve any component of service and is merely a sale of food items and beverages at pre fixed price.

Section 2(30) and 2(74) of CGST Act, 2017 deals with definition of composite supply and mixed supply as follows:

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;

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.

A supply of goods and/or services will be treated as composite supply if it fulfills the following criteria:

• Supply of 2 or more goods or services together; AND
• It is a natural bundle, i.e., goods or services are usually provided together in the normal course of business.
• They cannot be separated.

The tax rate applicable to the principal supply will apply on the entire bundle of supply, i.e., composite supply.

Any supply can be a composite supply or a mixed supply depending upon facts and circumstances of each case.

The term ‘composite supply’ has been defined in section 2(30) of the CGST Act, 2017 to mean  a taxable supply consisting of:

• Two or more goods
• Two or more services or
• A combination of goods and services
• Which are naturally bundled and
• Supplied in conjunction with each other
• In the ordinary course of business
• One of which is a principal supply

The term “principal supply” has been defined in section 2(90) of the CGST Act, 2017 to mean:

The supply of goods or services-

• which constitutes pre-dominant element of composite supply and
• to which any other supply forming part of composite supply is ancillary.

The term ‘mixed supply’ has been defined in section 2(74) of the CGST Act, 2017 to mean:

• 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.

Mixed supply under GST means a combination of two or more goods or services made together for a single price.

Each of these items can be supplied separately and is not dependent on any other. Under GST, a mixed supply will have the tax rate of the item which has the highest rate of tax.

Thus, mixed supply is also a combination of goods or services or both but it is other than the composite supply case. It is a supply made by taxable person for a single price. So, any supply of combination of goods or services or both will first be tested for being a composite supply. When it fails the test of composite supply, only then it will constitute a mixed supply. The SCN does not state that the impugned Para is a case of mixed supply.

Section 8 of CGST Act, 2017 for the purpose of composite supply, deals with the principles of interpretation of specified description of services or bundled services and serves the purpose of identifying or classifying a service in a particular category of service, if any.

What is ‘naturally bundled’ would depend upon facts and circumstances of each case. There is no straight jacket formula can be laid down to determine whether a service is naturally bundled in the ordinary course of business or not. Each case has to be examined individually in the backdrop of several factors, some of which are outlined below:

• There is a single price or the customer pays the same amount, no matter how much of the package / services they actually receive or use.
• The different elements are integral to one overall supply if one or more is removed, the nature of the supply would be affected.
• 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.

In such cases, it is important to decide, whether each service should be treated separately or as a single composite service, albeit, made up of two or more separate services.

In the case of mini-bar sales, since the services of room accommodation and mini-bar sales are not provided in or as a package form and separate price is charged for each such service, therefore, it cannot be regarded as naturally bundled service from any view point so as to make it a composite supply. The hotel does not provide the services of room accommodation and mini-bar sale as a package. The services of mini-bar sale are not ancillary or auxiliary to room accommodation service. Mini-bar services may or may not be availed / consumed by the hotel guest. There are separate charges / menu for items stocked in the mini-bar and the services are not included in room accommodation service. The bills for mini-bar and room accommodation are raised separately as these are provided as separate supplies. While accommodation is a service, mini-bar supplies are sale of goods. Further, there is no obligation on the service recipient (hotel guest) to consume any of these goods while enjoying the service of hotel accommodation. There could be situations that the guest may not even avail any of these services. These supplies are based on actual consumption and charged separately and therefore, cannot be treated as bundled at all. That being so in the instant case, there is no bundle whether naturally bundled in ordinary course of business or otherwise. The facility of mini-bar sale does not promote the service of short term accommodation or vice versa. The goods sold from mini-bar are priced as per menu.

While accommodation charges are fixed, supplies from mini-bar shall be charged on the basis of actual consumption of goods contained therein. The items / goods generally stocked in the mini-bar (a mini or small refrigerator) may include, inter alia, candies, biscuits, chocolates, wafers, nuts, dry fruits, water, soft drinks, beer etc. If consumed they are charged to customers on actuals and billed at the time of checkout based on menu prices. Such min-bar supplies are essentially supply of individual food supply items, generally meant for human consumption which may be consumed in the room itself or outside the room. GST at the rate of tax applicable to supply of food is chargeable in such cases.

Further, while each room may have mini-bar installed, each room guest may not consume goods from mini-bar. It being so, there cannot be a case of natural bundling or even artificial bundling so as to say that supply of min bar is in conjunction with any other supply. Both the supplies are independent supplies and any possibility of bundling, composite / mixed supply is ruled out.

In view of the above, services provided by hotel cannot be treated as bundled or composite services at all as the amount of food supplies by way of mini-bar sales is not included in the room rent as bundled service and both are billed separately according to the actual food consumed by the guest.