Appellate Authority Confirms IGST on Commercial Lease Services, Exemption Denied

The Appellate Authority upheld the classification of the service under SAC 997212, subjecting it to IGST @ 18%. The exemption under SI.No.13 of Notification No.9/2017 was deemed inapplicable as the leased property, although on residential land, was used commercially by the lessee, negating its characterization as a residential dwelling. The order of the AAR, Andhra Pradesh, was affirmed, concluding that the appellant's service did not qualify for the claimed GST exemption.

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Issues Involved:
1. Eligibility for GST exemption under SI.No.13 of Notification No.9/2017 - Integrated Tax (Rate) dated 28.06.2017 for renting out a residential building.
2. Classification of the service provided by the appellant.
3. Nature and use of the leased property.
4. Applicability of judicial pronouncements and legal definitions to the case.

Issue-wise Detailed Analysis:

1. Eligibility for GST Exemption:
The primary contention was whether the appellant’s service of renting a residential building to a company for long-term residential accommodation qualifies for GST exemption under SI.No.13 of Notification No.9/2017 - Integrated Tax (Rate) dated 28.06.2017. The appellant argued that their service meets the conditions for exemption:
- The service involves renting immovable property.
- The property is a residential dwelling.
- The property is used as a residence.

2. Classification of Service:
The Authority for Advance Ruling (AAR) classified the service under SAC 997212, which pertains to rental or leasing services involving own or leased non-residential property, and thus liable to IGST @ 18%. The appellant contested this classification, asserting that their service should be exempt under SI.No.13 of Notification No.9/2017.

3. Nature and Use of the Leased Property:
The appellant provided extensive documentation to demonstrate that the property is a residential dwelling, including municipal records, layout plans, and legal reports. However, the AAR and the Appellate Authority found that the property, despite being constructed on residential land, was used for commercial purposes. The lease agreement allowed the lessee to sub-lease the property and engage in commercial activities, such as providing accommodation to students and professionals, which indicated a commercial use rather than residential.

4. Applicability of Judicial Pronouncements:
The appellant cited various judicial pronouncements to support their claim that the property should be considered a residential dwelling used as a residence. However, the Appellate Authority noted that these cases did not directly apply to the present matter, as the property was used for commercial purposes by the lessee.

Discussion and Findings:
- The Appellate Authority examined the lease agreement and found that the lessee, D-Twelve Spaces Private Limited, used the property for commercial purposes, such as sub-leasing and providing various amenities, which negated the claim of residential use.
- The property, consisting of 73 rooms, was not used as a conventional residential dwelling but rather as a hostel or similar accommodation, indicating a commercial nature.
- The Appellate Authority upheld the AAR's classification of the service under SAC 997212 and concluded that the exemption under SI.No.13 of Notification No.9/2017 was not applicable, as the property was not used as a residence by the lessee.

Order:
The order of the AAR, Andhra Pradesh, vide Order AAR No.12/AP/GST/2020 dated 05.05.2020, was upheld, confirming that the service provided by the appellant is liable to IGST @ 18% and not eligible for the claimed exemption.

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