Government hostel rental income subject to GST as education exemption under municipal functions notification denied

The AAR, Telangana ruled that rent received from Government Social Welfare College Boys Hostel is taxable under GST. The applicant sought exemption under Notification No. 12/2017 for pure services related to municipal functions under Article 243W of the Constitution. The AAR held that renting buildings to government entities does not directly relate to functions enumerated in Schedule 12 of the Constitution, as education is listed in Schedule 11 but not specifically in Schedule 12. Therefore, the exemption was denied and the rental income remains subject to GST.

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Issues involved:
The judgment involves determining the taxability of rent received from the Government SWCBH.

Brief facts of the case:
The applicant entered into an agreement with the Scheduled Castes Development Department to rent out property for running a Social Welfare College Boys Hostel. The department provides hostel facilities to students of Scheduled Caste weaker sections and backward classes. The applicant believes they are providing pure services exempt under Notification No. 12/2017.

Questions raised:
The main question raised was whether the rent received from the Government SWCBH is taxable.

Discussion & Findings:
The judgment analyzed the exemption under Notification No. 12/2017, which covers pure services provided to the Government by way of activities related to functions entrusted to a Municipality under the Constitution. The judgment referred to specific functions listed under the Constitution, such as urban planning, public health, and poverty alleviation. It highlighted the requirement for a direct link between the services provided and the functions listed in the Constitution for exemption eligibility. The judgment cited legal precedents to clarify the meaning of "in relation to" and emphasized the need for a direct and immediate link with the functions specified in the Constitution for exemption.

Ruling:
The ruling clarified that the rent received from the Government SWCBH is taxable, as the services provided by the applicant did not have a direct relation to the functions discharged by the Government under the Constitution. Therefore, the services did not qualify for exemption under Notification No. 12/2017.

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