Is the wellness center a hotel or a clinical facility?
When staying in a scenic setting, the issue of the Goods and Services Tax (GST) being levied on the final bill may seem remote. But, according to tax experts, only a lucky few, where the station relies on solid legal advice or has obtained a favorable advance ruling, can escape the GST levy.
For others, the stay could be likened to that of a hotel, with a GST levy of 18% for example (this would depend on the room rate) payable on their final invoice.
Recently the Appeal Authority for Advance Rulings (AAAR) of the State of Uttarakhand in the case of Corbett Nature Reserve ruled that its naturopathic center could not apply for GST exemption . The AAAR has confirmed the ruling issued by the Advance Rulings Authority.
In this case, the plaintiff argued that the health care services provided by an independent unit within the resort, namely: Aahana Naturopathy Center, is a clinical facility that provides natural cures and yoga therapies.
It has a licensed doctor on its rosters and the facilities offered by this unit are available not only to in-house clients but are open to everyone.
The Center is registered under the Clinical Establishments Act 2010. Based on these facts, he argued that he qualified as a clinical establishment and should be eligible for exemption as a provider of “health care services” according to entry 74 of Notification 12/2017 .
However, the AAAR observed that the Corbett Nature Preserve had advertised and marketed its lodging service as a primary service and naturopathy as an additional service. Thus, the entire service package was composite in nature. Moreover, since accommodation services were the predominant element, they would constitute the principal supply.
After analyzing the notification, the AAAR determined that all services provided in connection with or in addition to accommodation services would also be subject to GST. These auxiliary or complementary activities have a proximal link with the accommodation services.
Although this decision was made by the appeal authority, it still only binds the applicant and the TPS officials. In the past, there have been several divergent decisions on this issue.
The AAR-Gujarat Bench of the GST Authority for Advance Rulings (AAR), in the case of Nimba Nature Cure Village (a unit of Oswal Industries), had also ruled that its services did not fall under the category of “Advance Rulings Services”. health care by a clinical establishment” and would not qualify for the GST exemption.
The AAR had noted that the services provided by Nimba Nature Cure Village were a composite service – including accommodation, food and therapy.
Payments received from customers depended on the type of room chosen and the type of occupancy (single or double). There was no option for guests to enjoy wellness therapy without opting for accommodation. Thus, the “accommodation service” was the main supply and the GST rates relating thereto would apply.
Incidentally, in January 2019, the Goa bench of GST-AAR in the case of Devaaya Ayurveda & Nature Cure Center considered it to be a clinical facility and the services it offered were services health care. Thus, he was entitled to the GST exemption.
“Contradictory decisions sow confusion and defeat the very purpose of providing certainty. Although the opinions of one ruling authority are not binding on another, judicial discipline would suggest that at least detailed reasoning should be provided for not applying another ruling,” says Sunil Gabhawalla, Chartered Accountant and GST specialist.