2023 (11) TMI 1200 - AAR - GST

Hostel accommodation services for students and working women not exempt under GST, taxed at 18% rate

The AAR, Tamil Nadu ruled that hostel accommodation services provided to students and working women are not exempt under GST exemption notifications. The ... Exemption from GST - hostel accommodation being provided by the Applicant to students and working women - residential dwelling for use as residence or not - tariff heading and the rate of taxability of the supply of service - incidental activity of supply of in-house food to the inmates of the hostel - composite exempt supply. Whether the hostel accommodation extended by the Applicant hostel would be eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and under the identical Notification under the TNGST Act, 2017, and also under Entry 13 of Exemption Notification No. 09/2017-IT (Rate) dated 28.06.2017, as amended? - HELD THAT:- The term ‘residential dwelling’ has not been defined either under CGST Act or under Notification No. 12/2017. However, under the erstwhile service tax law, in paragraph 4.13.1 of the ‘Taxation of Services: An Education Guide dated 20.06.2012’, issued by the CBIC, the expression residential dwelling’ has been interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp - site, lodge, house boat, or like places meant for temporary stay - It is observed that hostels are nothing but accommodations which provide temporary lodging to the inmates, whether students or working people. Similar to converting a residential dwelling into a hotel and providing hotel services, which eventually makes the same dwelling “non-residential” and taxable, in the instant case, the residential homes (for use as a residence) have been converted into a commercial premises ic., hostel accommodation, thereby losing its status as ‘residence dwelling’ and has become a business premises comparable to a hotel. The hostel accommodation is not equivalent to residential accommodation and hence the services supplied by the Applicant would not be eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT(Rate) dated 28.06.2017 and under the identical Notification under the TNGST Act, 2017, and also under Entry 13 of Exemption Notification No. 09/2017 IT(Rate) dated 28.06.2017, as amended. Tariff heading and the rate of taxability of the supply of service - HELD THAT:- It is observed that hotels are meant for a temporary stay (2-5 days) and have lot of facilities and staff, but hostels are used for a longer period and have basic facilities with minimal staff required by the inmates to stay at a reasonable rate. Therefore, hostel services cannot be equated to a hotel accommodation and hotel GST rates cannot be applied to a hostel. Therefore, we hold that supply of hostel accommodation services (Tariff heading 9963) is taxable (a 9% CGST + 9% SGST under SI.No. 7(vi) of the above Notification (SI.No. 7 (ix) as per original notification). In the event of the hostel accommodation being an exempt activity, whether the incidental activity of supply of in-house food to the inmates of the hostel would also be exempt being in the nature of a composite exempt supply? - HELD THAT:- The natural bundle has the characteristic of where one service is the main service and the other services are ancillary services which help in better enjoyment of the main service. Further, there is a single price for the combined services. The principal activity of the Applicant is supply of accommodation Services. While providing such services, the charges are being realised in a consolidated manner for the value of food and other like services rendered. The Applicant has stated that they do not charge separately for the other services provided by them. Thus, the services provided by the Applicant are composite in nature - As per Section 8 of the CGST Act, 2017, for a Composite supply, the tax rate on the principal supply will be treated as the tax rate on the given composite supply. Since the Applicant provides a number of services in a composite manner, the hostel accommodation services provided by the Applicant, being the principal supply, which is taxable @18%, will be tax rate for the composite supply provided by them. Issues Involved:1. Eligibility for GST exemption on hostel accommodation under specific notifications.2. Tariff heading and tax rate for hostel accommodation services.3. Taxability of in-house food supply to hostel inmates.4. Scope of ruling under Section 97(2) of the GST Act.Summary:Issue 1: Eligibility for GST exemption on hostel accommodation under specific notifications.The primary issue was whether the hostel accommodation provided by the Applicant qualifies for GST exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017. The Authority concluded that the hostel accommodation does not qualify as 'residential dwelling for use as residence' because it is a commercial establishment providing temporary lodging with ancillary services, thus not meeting the exemption criteria. The premises rented out by the Applicant cannot be construed as a residential dwelling. The decision of the Karnataka High Court in Taghar Vasudeva Ambrish was noted but not followed as it is pending before the Supreme Court.Issue 2: Tariff heading and tax rate for hostel accommodation services.The relevant entries in Notification No. 11/2017, Central Tax (Rate), dated 28.06.2017, were considered. The Authority held that hostel services fall under Tariff heading 9963 and are taxable at 9% CGST + 9% SGST under SI.No. 7(vi) of the Notification, distinguishing hostel services from hotel accommodations.Issue 3: Taxability of in-house food supply to hostel inmates.The Applicant's provision of in-house food along with accommodation was considered a composite supply. As per Section 2(30) and Section 8 of the CGST Act, 2017, the principal supply (hostel accommodation) determines the tax rate for the composite supply. Therefore, the entire composite supply, including food services, is taxable at 18%.Issue 4: Scope of ruling under Section 97(2) of the GST Act.No ruling was issued for the fourth question as it did not fall under the scope of Section 97(2) of the GST Act.Ruling:1. Hostel accommodation services are not eligible for exemption under the specified GST notifications.2. Hostel accommodation services fall under Tariff heading 9963 and are taxable at 18%.3. The supply of in-house food to hostel inmates is part of a composite supply and is taxable at 18%.4. No ruling on the fourth question as it is outside the scope of Section 97(2) of the GST Act.