2020 (7) TMI 390 - AAR - GST

Residential property leased for commercial use subject to 18% IGST

In Re: M/s. Lakshmi Tulasi Quality Fuels (Proprietor DUMPALA RAMA TULASI)

The Authority ruled that the service provided by the applicant, involving leasing a residential building for commercial purposes, was taxable at 18% IGST ... Exemption from payment of GST - Renting of accommodation service - Residential property or commercial property - monthly rentals received by her on lease of her residential building at Telangana to D-Twelve Spaces Private Limited - exemption under SI.No.13 of the Notification No. 9/2017 Dt:28-6-2o17 - HELD THAT:- Reading the lease agreement (Exhibit-2) and “Residents Enrolment Form” (Exhibit- 3) together and also taking note of the various observations made above, it appears that apart from renting of the rooms, the inmates are also being provided with food and hospitality services. As verified from the records, the lessee is a registered Taxable Person - Though the applicant claims that she has rented out residential dwelling for use as residence, it appears that the premise is a non-residential property. Considering the number of rooms and amenities provided in it, boarding and hospitality services extended to the inmates and all the clauses of the agreements discussed above, it appears that the building was constructed for the purpose of running a lodge house. It is clear that the lessee is engaged in commercial activity of renting of rooms in the dwelling and providing boarding and hospitality services to the inmates. The lessor has rented out her dwelling for commercial activity, and supply of such services, in the facts and circumstances of the case, are classifiable as “Rental or leasing services involving own or leased non-residential property” under Service Code (Tariff) 997212. It is taxable in the hands of the lessor and is liable for IGST at the rate of 18 percent. Issues:1. Eligibility for GST exemption on monthly rentals for lease of residential building.2. Interpretation of exemption notification SI.No.13 of Notification No. 9/2017.Eligibility for GST exemption on monthly rentals for lease of residential building:The applicant sought an advance ruling on whether she is eligible for GST exemption on monthly rentals received for leasing her residential building in Telangana. The applicant claimed exemption under SI.No.13 of Notification No. 9/2017, which pertains to services by way of renting residential dwellings for use as residence. The applicant contended that the conditions for exemption were met, as the service was for renting a residential dwelling for residential purposes.Interpretation of exemption notification SI.No.13 of Notification No. 9/2017:The Authority examined the lease agreement between the applicant and the lessee, D-Twelve Spaces Private Limited. It was noted that the lessee had the right to sub-lease the property for long-stay accommodation. However, upon further examination of the lease agreement and related documents, it was found that besides renting out rooms, the lessee provided food and hospitality services to the inmates, indicating a commercial activity. The Authority concluded that the building was used for commercial purposes, classifying the service under 'Rental or leasing services involving own or leased non-residential property,' taxable at 18% IGST.Conclusion:The Authority ruled that the service provided by the applicant was classified under SAC 997212, liable for IGST at 18%, and not eligible for the exemption under SI.No.13 of Notification No. 9/2017. The ruling was based on the commercial nature of the activity, where the lessee provided boarding and hospitality services along with room rentals, indicating a non-residential property usage.