2022 (2) TMI 780 - HC - GST

Leasing residential premises as hostel to students qualifies for GST exemption under Entry 13 of Notification 9/2017

Karnataka HC held that leasing residential premises as hostel to students and working professionals qualifies for GST exemption under Entry 13 of ... Services by way of renting of residential dwelling for use as residence - strict interpretation of exemption notification - burden on assessee to prove applicability of exemption - ordinary/popular meaning of 'residential dwelling' - distinction between residential dwelling and places for temporary stay (hotel, guest house, lodge)Services by way of renting of residential dwelling for use as residence - ordinary/popular meaning of 'residential dwelling' - burden on assessee to prove applicability of exemption - Leasing of residential premises as a hostel to students and working professionals falls within Entry 13 of Notification No.9/2017 (services by way of renting of residential dwelling for use as residence) and is eligible for exemption under the notification. - HELD THAT: - The Court applied settled principles that exemption notifications are to be strictly construed and the assessee bears the burden of proving applicability, but where terminology is undefined it must be given its ordinary trade parlance meaning. The expression 'residential dwelling' is not defined in the Act; authoritative administrative clarification and dictionary meanings indicate that it denotes residential accommodation and excludes establishments meant for temporary stay such as hotels, motels, guest houses or lodges. The hostel in question, used by students and working professionals for sleeping, eating and study for periods ranging from three to twelve months, falls within the ordinary meaning of 'residence' and 'dwelling'. The notification requires that a residential dwelling be rented and used as a residence; it does not impose a condition that the lessee personally use the premises as a residence. Regulatory classifications (trade licence, commercial registration) do not alter the character of the accommodation for purposes of the exemption. The Appellate Authority's characterization of the premises as 'sociable accommodation' and its conclusion that the lessee must itself use the premises were held to be untenable. Applying these determinations, the Court concluded that the petitioner's leasing of the property as a hostel satisfies Entry 13 and is exempt under Notification No.9/2017. [Paras 13, 14, 15, 16, 17]The order of AAAR Karnataka is quashed and the petitioner is entitled to the exemption under Entry 13 of Notification No.9/2017 for leasing the premises as a hostel.Final Conclusion: Writ petition allowed; leasing of the petitioner's residential premises as a hostel to students and working professionals is covered by Entry 13 of Notification No.9/2017 and the petitioner is entitled to the exemption. Issues Involved:1. Interpretation of 'residential dwelling' under Entry 13 of Notification No. 9/2017 dated 28.09.2017.2. Eligibility for GST exemption on leasing residential premises as hostels.3. Applicability of principles of statutory interpretation to exemption notifications.Issue-wise Detailed Analysis:1. Interpretation of 'residential dwelling' under Entry 13 of Notification No. 9/2017 dated 28.09.2017:The primary issue was whether the service of leasing residential premises as hostels falls under the exemption for 'renting of residential dwelling for use as residence' as per Notification No. 9/2017 under the Integrated Goods and Services Tax Act, 2017. The petitioner argued that the term 'residential dwelling' should be interpreted in its normal trade parlance, meaning any residential accommodation used for long-term stay, including hostels for students and working professionals. The respondents contended that 'residential dwelling' implies an abode with an element of permanency, and the lessee's commercial use of the property disqualifies it from being considered a residential dwelling.The court referred to the definition of 'residential dwelling' under the erstwhile service tax law and various dictionary definitions, concluding that the term includes any residential accommodation used for living purposes, distinguishing it from temporary accommodations like hotels or guest houses.2. Eligibility for GST exemption on leasing residential premises as hostels:The petitioner sought clarification on whether the rent received from leasing the property as a hostel was exempt from GST. Both the Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) in Karnataka had previously ruled against the petitioner, stating that the property was used for commercial purposes and did not qualify as a residential dwelling. The court, however, found that the hostels were used by students and working professionals for residential purposes, with stays ranging from 3 to 12 months, and thus qualified as residential dwellings. The court emphasized that the exemption notification does not require the lessee to use the premises as a residence themselves, and the purpose of the stay (residence) was the key factor.3. Applicability of principles of statutory interpretation to exemption notifications:The court applied established principles of statutory interpretation, noting that exemption notifications should be interpreted strictly, and any ambiguity should be resolved in favor of the revenue. However, in this case, the court found no ambiguity in the exemption notification. The court referred to precedents, including the Supreme Court's rulings in 'Dilip Kumar and Company' and 'State of Maharashtra vs. Shri Vile Parle Kelvani Mandal,' which emphasized that words not defined in the statute should be understood in their popular sense.The court also dismissed the relevance of the petitioner's registration as a commercial establishment and the trade license issued by the BBMP, stating that these factors were irrelevant for determining eligibility under the exemption notification.Conclusion:The court quashed the AAAR Karnataka's order and held that leasing residential premises as hostels to students and working professionals is covered under Entry 13 of Notification No. 9/2017, entitling the petitioner to GST exemption. The writ petition was allowed, granting the petitioner the benefit of the exemption notification.