2023 (7) TMI 870 - AAR - GST

PG/hostel accommodation ruled taxable under GST as temporary stay, not residential dwelling exemption

In Re: M/s. Srisai Luxurious Stay LLP,

AAR Karnataka ruled that PG/hostel accommodation does not qualify as 'residential dwelling' under GST exemption since it constitutes temporary stay ... Exemption from GST - residential dwelling or not - PG/Hostel Rent paid by inhabitants - charges collected towards allied additional services provided by the LLP - bundled service along with the service of providing of Hostel/Paying guest or not - GST on reverse charge will be applicable on the rental to be paid to the landowners or not - entry No. 12 of Notification No. 9/2017 dated 28th September 2017. Whether PG/Hostel Rent paid by inhabitants qualify for GST exemption, since they are used as residential dwelling? - HELD THAT:- The term ‘residential dwelling’ is neither defined in the Notification nor in the CGST Act 2017/rules made there under. However the Education guide on Taxation of services, issued by the CBIC under erstwhile Service Tax Law, at para 4.13.1 while answering the question “What is a ‘residential dwelling’?” directed to interpret the term ‘residential dwelling’ in terms of the normal trade parlance, as per which it is a residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, house boat, or like places meant for temporary stay. Therefore it could be inferred from the above that residential dwelling is a residential accommodation meant for permanent stay and does not include guest house, lodge or like places. In the instant case, the applicant in his own admission claims to be providing PG/hostel services which inter alia refer to ‘paying guest accommodation/hostel’ services and are akin to guest house and lodging services and therefore can’t be termed as ‘residential dwelling’. Further, it is also an admitted fact that the accommodation being provided by the applicant, out of the immovable property taken on rent and claimed as residential dwelling, does not have individual kitchen facility to each of the inhabitant and also cooking of food by inhabitants is not allowed, which is an essential characteristic for any permanent stay. On this count as well, the impugned accommodation being provided does not qualify to be a residential dwelling and thus the question of using the same as residence does not arise - the services being provided by the applicant do not qualify for exemption under SI No. 12 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended. Whether the charges collected, towards allied additional services provided by the LLP would be considered as a bundled service along with the service of providing of Hostel / Paying guest? - HELD THAT:- Natural bundle has the characteristics where one of the services is the main service and the other services combined with such service are incidental or ancillary services which helps in better enjoyment of the main service. There are several other factors to determine if various services are naturally bundled or not- like if there is a single price for all the combined services or the combined services are advertised as a single package or the combined services cannot be separated. Important point to consider is that the different elements are integral to one overall package/service i.e. if one or more service is removed then the nature of the package would be affected. The applicant has not furnished any information as to whether these facilities/services are integral part of main supply of hostel/paying guest accommodation or not. Nevertheless it is evident from the nature of the additional services that they are optional and all inhabitants may not opt for the said services. An inhabitant without a vehicle does not require vehicle parking facility; some of the inhabitants may not opt for food i.e. breakfast etc., washing machine facility, television etc. Thus these are the optional facilities / separate services and hence can’t be naturally bundled services as an inhabitant can still stay at the hostel without utilizing these facilities - these facilities do not affect the main supply i.e. the main supply would not be affected even if one or more of these services are not provided and thus these facilities/services are not naturally bundled with the main supply of hostel/paying guest accommodation and are separate services which need to be taxed separately. Whether GST on reverse charge will be applicable on the rental to be paid to the landowners? - HELD THAT:- The applicant has to obtain GST registration and discharge the GST liability. Thus the applicant becomes a registered person and the RCM notification, as amended, is applicable to the applicant and hence they have to discharge the GST liability @ 18% under RCM - GST on reverse charge will be applicable on the rental to be paid to the landowners by the applicant as the services of the applicant are leviable to GST and thus the applicant has to obtain GST registration. Issues Involved:1. Whether PG/Hostel Rent paid by inhabitants qualifies for GST exemption.2. Whether the charges collected towards allied additional services are considered as a bundled service.3. Whether GST on reverse charge will be applicable on the rental to be paid to the landowners.Issue-wise Comprehensive Details of the Judgment:1. GST Exemption for PG/Hostel Rent:The applicant sought a ruling on whether PG/Hostel Rent qualifies for GST exemption under Exemption entry No. 12 of Notification No. 9/2017. The Authority examined Notification No. 12/2017-Central Tax (Rate) and concluded that the term 'residential dwelling' does not include accommodations like hostels or paying guest services. The applicant's services, characterized by shared rooms and ancillary services, do not meet the criteria for 'residential dwelling' meant for permanent stay. Therefore, the PG/Hostel Rent paid by inhabitants does not qualify for GST exemption under SI No. 12 of Notification No. 12/2017-Central Tax (Rate).2. Bundled Services:The applicant inquired whether the charges for allied additional services (meals, furnished rooms, security, housekeeping, washing machine, television, internet, and parking) should be considered as a bundled service with the main service of providing hostel/paying guest accommodation. The Authority determined that these additional services are optional and not integral to the main service. Since inhabitants may choose not to avail of these services, they are not naturally bundled with the main service. Therefore, these allied additional services are separate and need to be taxed individually.3. GST on Reverse Charge for Rental Payments:The applicant questioned the applicability of GST on reverse charge for rental payments to landowners. The Authority referred to Notification No. 13/2017-Central Tax (Rate) as amended by Notification No. 05/2022-CT(R), which mandates that GST on rent for residential property is payable under reverse charge by a registered person. Since the applicant's services are subject to GST, they must obtain GST registration and discharge the GST liability under reverse charge at 18%.RULING:a) PG/Hostel Rent paid by inhabitants does not qualify for GST exemption under SI No. 12 of Notification No. 12/2017-Central Tax (Rate).b) The allied additional services provided by the LLP are not naturally bundled with the main service of Hostel/Paying guest accommodation.c) GST on reverse charge will be applicable on the rental payments to the landowners, and the applicant must obtain GST registration.