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

The AAAR, Andhra Pradesh rejected GST exemption for hostel room leasing services. The appellant leased premises to a management company which sub-leased to an educational society providing bundled accommodation and food services to students. The authority held that the service resembled hotel/guest house operations rather than residential dwelling rental. The exemption under notification 12/2017 for "renting of residential dwelling for use as residence" requires twin conditions: the property must be a residential dwelling AND used as residence by the lessee. Since the lessee sub-leased for commercial hostel operations with food services, not personal residence, the exemption was denied. The authority emphasized strict interpretation of conditional exemptions in taxation law.

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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.

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