2020 (9) TMI 354 - AAAR - GST

Appeal Dismissed: Hostel Not Residential Dwelling for Tax Exemption

The appellate authority upheld the Advance Ruling, dismissing the appeal. The property leased out, constructed as a hostel, does not qualify as a ... Services by way of renting of residential dwelling for use as residence - residential dwelling - for use as residence - exemption under Entry No. 13 of Notification No. 09/2017-IT (Rate) - advance ruling time limit under Section 98(6) - manual filing under Rule 107A and transitional filing on common portal - irregularity in procedure versus jurisdictional invalidity - locus of applicant as part of a group of lessorsServices by way of renting of residential dwelling for use as residence - residential dwelling - for use as residence - exemption under Entry No. 13 of Notification No. 09/2017-IT (Rate) - Renting/leasing of the impugned property by the lessors is not exempt under Entry No.13 of Notification No.09/2017-IT (Rate). - HELD THAT: - The impugned property was constructed and sanctioned as a hostel building and, on the common understanding of terms, is an establishment providing sociable/institutional accommodation rather than a 'residential dwelling' treated as a home. The explanatory notes to the classification indicate that rental services in respect of residential properties are distinct from accommodation services provided by hotels, motels, hostels etc. Even assuming the property to be a residential dwelling, the exemption applies only where the recipient uses the dwelling 'for use as residence'. Here the lessee (M/s DTwelve Spaces Pvt. Ltd.) is using the leased premises to conduct a business of providing paying guest accommodation to students; the recipient is not using the premises as its own residence. On both counts - (i) the building's character as a hostel rather than a residential dwelling and (ii) the lessee's use for operating a paying guest business rather than using the dwelling as residence - the renting activity is outside Entry No.13 and taxable under GST. [Paras 11, 12, 13]The renting/leasing is not eligible for exemption under Sl. No.13 of Notification No.09/2017-IT (Rate).Manual filing under Rule 107A and transitional filing on common portal - The date of manual filing is the operative date of application for advance ruling in the circumstances of this case; online filing date cannot be treated as the date of application where transitional/manual filing was applicable. - HELD THAT: - Rules 104 and 106 require filing on the common portal but Rule 107A (inserted by notification) and Circular No.25/25/2017 clarified that until the advance ruling module is available, manual filing in the prescribed form is permissible and the fee is to be paid online. Given the unavailability of the requisite forms on the portal and statutory transitional provisions, the Authority correctly treated the manual submission date as the date of filing. [Paras 14]The manual filing date is correctly adopted as the date of application.Advance ruling time limit under Section 98(6) - irregularity in procedure versus jurisdictional invalidity - Delay by the AAR in pronouncing the advance ruling beyond ninety days does not render the ruling null and void; it is an irregularity remediable by appeal. - HELD THAT: - Section 98(6) prescribes a ninety day period to pronounce an advance ruling. Non compliance with that timeline in the present case constitutes procedural irregularity. An order passed by a competent authority within jurisdiction, though delayed, is not deprived of efficacy by a collateral or incidental attack; the appropriate remedy is to challenge the order in a duly constituted appellate forum. Only orders passed without jurisdiction would be void ab initio. [Paras 15]The belated pronouncement does not invalidate the AAR's ruling; it remains subject to challenge by appeal, but is not null and void for delay.Locus of applicant as part of a group of lessors - The AAR's observation that the applicant in his individual capacity was not effecting the supply was beyond the question before it and is expunged; the applicant acted as part of a group of lessors. - HELD THAT: - The transaction before the Authority was the collective lease by five co owners to the lessee. The applicant applied in his capacity as one of the lessors forming part of that group. The impugned AAR's paragraph suggesting the individual applicant did not effect supply is extraneous to the ruling sought and is accordingly expunged. The substantive question remained whether the lessors' leasing was exempt under Entry No.13, which has been addressed on its merits. [Paras 16]The AAR's extraneous observation in Para 8(b) is expunged; the applicant is part of the group of lessors and the collective lease was adjudicated on merits.Final Conclusion: The Appellate Authority for Advance Ruling dismissed the appeal and upheld AAR Karnataka's Advance Ruling No. KAR/ADRG 17/2020 dated 23-03-2020: the leased premises are not covered by the exemption in Entry No.13 of Notification No.09/2017-IT (Rate), the manual filing date was correctly adopted, the delay in pronouncing the ruling does not render it void, and an extraneous observation regarding the applicant's individual supply was expunged. Issues Involved:1. Whether the leased property qualifies as a 'residential dwelling' under GST law.2. Whether the exemption under Entry No. 13 of Notification No. 09/2017-IT (Rate) dated 28.06.2017 applies to the lease service.3. Validity of the ruling passed beyond the prescribed time limit.4. Whether the appellant individually provides the leasing service or as part of a group.Detailed Analysis:1. Qualification of the Property as a 'Residential Dwelling':The appellant argued that the property leased out qualifies as a 'residential dwelling' and should be exempt from GST under Entry No. 13 of Notification No. 09/2017-IT (Rate). They submitted documents such as the sanctioned building plan and Katha extract to substantiate that the property is residential. However, the appellate authority noted that the property was constructed as a hostel building, which is typically not considered a residential dwelling in the common understanding. A residential dwelling is generally understood as a place where people reside treating it as a home, while a hostel provides sociable accommodation for specific categories like students or workers. Therefore, the property does not qualify as a 'residential dwelling.'2. Applicability of Exemption under Entry No. 13 of Notification No. 09/2017-IT (Rate):The exemption under Entry No. 13 applies to 'Services by way of renting of residential dwelling for use as residence.' The appellant contended that the property is used by the lessee for running a paying guest accommodation, which involves long-term stays by students, thus qualifying as a residence. However, the appellate authority concluded that the lessee, M/s DTwelve Spaces Pvt Ltd, uses the property for its business of providing paying guest accommodation, not as a residence. The exemption is available only if the residential dwelling is used as a residence by the lessee, which is not the case here. Therefore, the exemption does not apply.3. Validity of the Ruling Passed Beyond the Prescribed Time Limit:The appellant argued that the ruling was passed beyond the 90-day limit prescribed under Section 98(6) of the CGST Act, making it unsustainable. The appellate authority noted that the application was filed manually on 6th December 2019, and the ruling should have been pronounced by 5th March 2020. Although the ruling was passed after the stipulated period, it does not render the ruling null and void. An order suffering from procedural irregularity can be set right in appeal proceedings.4. Provision of Leasing Service by the Appellant:The appellant contended that the lower authority's ruling was contradictory, as it stated that the appellant is not individually providing the service but as part of a group. The appellate authority clarified that the supply of service is between the group of individuals (lessors) and the lessee company. The appellant, being part of this group, does not have a separate locus standi in his individual capacity. The application for advance ruling was made in the context of the group of individuals leasing the property.Conclusion:The appellate authority upheld the Advance Ruling No. KAR/ADRG 17/2020 dated 23-03-2020, dismissing the appeal on all counts. The property does not qualify as a 'residential dwelling,' the exemption under Entry No. 13 does not apply, the ruling's delay does not invalidate it, and the service is provided by the group of lessors, not the appellant individually.