2023 (1) TMI 432 - AAAR - GST

Hostel room leasing services denied GST exemption under notification 12/2017 for residential dwelling rental

In Re: M/s. Aluri Krishna Prasad,

The AAAR, Andhra Pradesh rejected GST exemption for hostel room leasing services. The appellant leased premises to a management company which sub-leased ... Exemption from GST - amount received for leasing residential hostel rooms - Exempt under sl. No.14 (Heading 9963) of Notification no 12/2017-Central Tax (Rate) dt:28.06.2017 as amended or sl. No.12 (Heading 9963) of Notification no 12/2017-Central Tax (Rate) dt:28.06.2017 as amended? - HELD THAT:- The lessee M/s. Nspira Management Services Private Limited has sub-leased the said premises to M/s. Narayana Educational Society to accommodate their students. Further, the said Narayana Educational Society are running / maintaining a 'MESS' to cater to the needs of their 'inmates' in a building adjacent to the said hostel building. Thus, it is clear that, the sub-lessee i.e. M/s. Narayana Educational Society is providing a 'bundled service' i.e. a bundle of 'Renting of accommodation' and 'supplying food and beverages service' to their 'inmates I students / clients'. In 'Guest House / Hotel / Inn etc.' the same services are provided. This is the basic difference between a 'place of Residence' and a 'Hotel / Guest House / Inn etc.'. The Place of residence, in common understanding is premises rented out / leased out to a person, where that person resides, cooks food, consumes it and 'LIVES'. Generally 'No provision for supply of Food' is existing with reference to a 'Place of Residence'. Therefore, in the instant case, the premises is put into use which is more akin to a 'Hotel / Guest House / Inn etc.' and definitely different from a 'Place of Residence' in common understanding. The exemption on “services by way of renting of residential dwelling for use as residence” envisaged under the said notification is conditional and restricted only the recipient of the services and NOT beyond. In other words, supply is the fulcrum of GST, the transaction of supply (with regard to appellant) ends with the recipient of services only, in so far as the GST is concerned. Now, from the lease document, it is clearly known that the lessee is not going to use the rented property as 'residence' by himself but only going to sub-lease or rent out to others like students of educational institutions, etc., for their use. Unless the twin conditions of 'renting of residential dwelling' for 'use as residence,' being inter-twined and inseparable, are not met, the exemption is not available. As per settled law, in taxation laws, especially when exemptions or concessions or benefits are to be availed, the interpretation is to be literally and strictly construed and not in liberal terms. If there is a conditional exemption in GST based on end-use, the end-use has to be determined with respect to facts and for the recipient of the services only from the supplier directly and it is not for the department to see how the services are finally put to use by the recipient in turn and so on. In the instant case there is no evidence to show that either the building was a residential dwelling or it is going to be put to use as residence for himself by the lessee - The lower authority has considered all the facts and details of the case and examined them in the light of the relevant provisions of the APGST Act and Rules 2017 along with relevant notifications while deciding the case. Issues Involved:1. Whether the amount received for leasing residential hostel rooms is exempt under SI.No.14 (Heading 9963) of Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 as amended.2. Whether the amount received for leasing residential hostel rooms is exempt under SI.No.12 (Heading 9963) of Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 as amended.Issue-wise Detailed Analysis:1. Background of the Case:The appellant, M/s. Aluri Krishna Prasad, filed an appeal against the ruling by the Advance Ruling Authority, Andhra Pradesh, which held that rental amounts collected by the appellant from the lessee for providing accommodation to students are liable to GST. The appellant argued that the buildings were used for residence and should be exempt under Notification No. 12/2017-CT (Rate) dated 20.06.2017.2. Grounds of Appeal:The appellant contended that the lower authority erred in its finding by not considering the purpose for which the building was rented. The appellant cited various legal precedents, including the Taghar Vasudeva Ambrish case, where the High Court held that hostels used for residence are eligible for GST exemption.3. Virtual Hearing:The proceedings of the personal hearing were conducted on 04.11.2022, where the authorized representative reiterated the submissions.4. Discussion and Findings:The issues to be decided in this appeal are:4.1. Exemption under SI.No.14 (Heading 9963) of Notification No.12/2017-Central Tax (Rate):The Advance Ruling Authority of Andhra Pradesh ruled that the appellant is not eligible for exemption. The lease agreement indicated that the property was given on a 'LEASE BASIS' for running a student hostel, not as a residential dwelling. The property was constructed as a hostel building, approved by the Andhra Pradesh Capital Region Development Authority. The lessee, M/s. Nspira Management Services, sublet the property to M/s. Narayana Educational Society for business purposes, not for residential use.4.2. Exemption under SI.No.12 (Heading 9963) of Notification No.12/2017-Central Tax (Rate):The exemption under this heading applies to 'Services by way of renting of residential dwelling for use as residence.' The property in question was not a residential dwelling but a hostel building, which is commercial in nature. The lessee, a commercial entity, used the premises for business purposes, not as a residence. The CBIC Education Guide clarified that 'residential dwelling' does not include establishments like hostels, which are meant for temporary stay.Legal Precedents and Interpretations:The appellant cited the Taghar Vasudeva Ambrish case, where the High Court allowed GST exemption for hostels used as residences. However, the facts in that case differed from the present case. The lease agreement in the current case explicitly prohibited subletting, and the building was categorized as a hostel from the beginning.Supreme Court and Tribunal Decisions:The Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company held that exemption notifications should be interpreted strictly. The burden of proving applicability lies with the assessee. The Hon'ble Supreme Court in M/s. Rohit Pulp and Paper Mills Ltd. Vs. Collector of Central Excise emphasized that the purpose and objective of the notification should be considered.Conclusion:The exemption is specific to residential properties taken on rent by individuals or families, not commercial entities. The appellant's property, categorized as a hostel, does not qualify for the exemption under Notification No.12/2017-CT (Rate). The ruling by the Advance Ruling Authority of Andhra Pradesh is upheld.ORDER:The ruling given by the Advance Ruling Authority of Andhra Pradesh is confirmed and upheld.