2020 (4) TMI 692 - AAR - GST

GST applies to lease services for non-residential dwellings; exemption not valid

The ruling determined that the lessors must charge GST for lease services to the company as the leased premises did not meet the definition of a ... Supply of services by way of leasing/letting out of immovable property - exemption for 'Services by way of renting of residential dwelling for use as residence' under entry 13 of Notification No. 9/2017 - Integrated Tax (Rate) - pooled lessors as a single contracting entity for invoice and taxability purposes - distinction between residential dwelling and rooms provided as lodging/hostel/PG accommodationPooled lessors as a single contracting entity for invoice and taxability purposes - supply of services by way of leasing/letting out of immovable property - Characterisation of the transaction and the person(s) liable to issue invoice and charge GST where multiple lessors have pooled parts of a property and executed a single lease to the lessee. - HELD THAT: - The lease deed shows five lessors pooled their individual parts into a single property and executed one agreement in favour of the lessee for the entire premises, with a common consideration and a mechanism for apportionment of receipts. The lessee has the right to sub lease the total property and all terms apply to the whole. The authority accordingly held that the supply is made by the group of lessors as a single contracting entity to the lessee; the applicant is not independently supplying to the lessee. Consequently, invoicing and taxability must be examined in the context of the group to lessee supply rather than as separate supplies by individual lessors. The exact legal nature or constitution of the group (partnership, association etc.) was not ascertained and was not decided. The transaction, being grant of right to use immovable property for consideration in the course or furtherance of business, constitutes a supply of services under the Act. [Paras 7, 8]The lessors, acting as a pooled group under a single lease, constitute the supplier of the leasing service to the Company and invoicing/taxability must be determined at the group to lessee level; the applicant does not individually effect supply to the Company.Exemption for 'Services by way of renting of residential dwelling for use as residence' under entry 13 of Notification No. 9/2017 - Integrated Tax (Rate) - distinction between residential dwelling and rooms provided as lodging/hostel/PG accommodation - Applicability of entry 13 exemption to the lease of the premises in question described as 42 rooms (with attached toilets) let out to an operator providing student accommodation with ancillary services. - HELD THAT: - Entry 13 exempts services by way of renting of a 'residential dwelling for use as residence.' The leased premises in the agreement consist of 42 rooms with attached toilets and are used by the lessee to provide student accommodation along with ancillary services (maintenance, food, Wi Fi etc.), akin to paying guest/hostel accommodation. The authority found such accommodation does not fit the meaning of a single 'residential dwelling' (a house) and that rooms provided for lodging/residential purposes by commercial establishments (hotels, inns, guest houses, paying guest accommodations) are categorised separately in the notification scheme. Therefore the exemption in entry 13 is not attracted to the group's lease to the Company. [Paras 9, 10, 11]The exemption under entry 13 does not apply; the lease services to M/s. DTwelve Spaces Pvt. Ltd. are not 'renting of residential dwelling for use as residence' and therefore are not covered by that exemption.Final Conclusion: The Authority ruled that the collective lease by the pooled lessors to the Company constitutes a taxable supply of services by the group (with invoicing/taxability to be treated at the group to lessee level) and that the exemption in entry 13 of Notification No. 9/2017 (renting of residential dwelling for use as residence) does not apply to the leased premises described and used as student lodging/PG accommodation; accordingly GST is chargeable by the lessors (provided they are registered). Issues Involved:1. Whether exemption under entry no. 13 of notification no. 9/2017-integrated tax (rate) dated 28th June, 2017 can be claimed, and lessors need not charge GST for lease services.2. Whether lease service qualifies as 'Services by way of renting of residential dwelling for use as residence' for exemption.Analysis:1. The applicant, a proprietary concern providing residential accommodation to students, sought advance ruling on exemption under entry no. 13 of a notification. The applicant, along with others, leased out a residential complex to a company providing student accommodation. The applicant argued that renting immovable property is a service under CGST Act Schedule II and claimed exemption under the notification. The company believed that no GST should be charged by lessors for lease services.2. During the personal hearing, it was noted that the lessors collectively leased their premises to the company under a single agreement. The agreement indicated the pooling of properties by lessors and a common consideration. The entire property was let out, allowing sub-leasing. The lessors were seen as a group providing leasing services for business or commerce, not individually. Hence, the nature of the transaction was considered a supply of service by the group to the company.3. The ruling authority examined the lease agreement and found that the leased premises did not fit the definition of a residential dwelling. The 42 rooms leased were more akin to hotel rooms than a residential dwelling. Therefore, the exemption for renting residential dwellings did not apply to the transaction. The second question regarding the lease service's classification under the exemption was also answered in the negative.Conclusion:The ruling concluded that the lessors, as an entity, must charge GST for lease services to the company, and the lease services did not qualify for exemption under the specified entry.