AAR rules hostel accommodation services don't qualify for GST exemption under Entry 12 of Notification 12/2017-CT, taxable at 18%

AAR Tamil Nadu ruled that hostel accommodation services do not qualify for GST exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate). The authority determined that hostel accommodation is not equivalent to residential dwelling for use as residence, as exemptions require strict interpretation. The applicant must register under GST as services constitute taxable supply. Hostel accommodation services fall under tariff heading 9963 and are taxable at 18% GST (9% CGST + 9% SGST). Services including food provided to hostel inmates constitute composite supply with accommodation as principal supply, attracting 18% tax rate.

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Issues Involved:

1. Eligibility for GST exemption for hostel accommodation under Entry 12 of Exemption Notification No. 12/2017-CT (Rate).
2. Requirement for GST registration based on turnover.
3. Applicable GST rate for hostel accommodation services.
4. Taxability of in-house food supply as part of composite services.
5. Ruling on a question outside the scope of Section 97(2) of the GST Act.

Issue-wise Detailed Analysis:

1. Eligibility for GST Exemption:

The primary issue was whether the hostel accommodation provided by the Applicant qualifies as a "residential dwelling for use as residence" under Entry 12 of Exemption Notification No. 12/2017-CT (Rate). The judgment emphasized that the term "residential dwelling" is not defined in the CGST Act. However, it is generally understood as a place where people reside treating it as a home, which does not include amenities like food or housekeeping. The Applicant's hostel, providing accommodation on a per-bed basis with ancillary services, was deemed a commercial activity rather than a residential dwelling. Consequently, the exemption was not applicable as the hostel did not meet the criteria of being a residential dwelling used as a residence.

2. Requirement for GST Registration:

The Applicant's service of providing hostel accommodation was classified as a transaction in the course of business, constituting a "supply" under Section 7(1)(a) of the CGST Act. Therefore, the Applicant is required to register for GST if their aggregate turnover exceeds twenty lakh rupees in a financial year, as per Section 22 of the GST Acts.

3. Applicable GST Rate for Hostel Accommodation Services:

The judgment determined that hostel accommodation services fall under Tariff heading 9963, which pertains to "Accommodation, food, and beverage services." The applicable tax rate was identified as 9% CGST and 9% SGST under Sl.No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), as amended. Hostel services, being distinct from hotel accommodations, were subject to this specific tax rate.

4. Taxability of In-house Food Supply:

The Applicant provided in-house food to hostel inmates as part of a composite service, which included accommodation and other services. The judgment clarified that this constitutes a composite supply, where the principal supply is the hostel accommodation service. As per Section 8 of the CGST Act, the tax rate applicable to the principal supply (hostel accommodation) applies to the entire composite supply. Therefore, the composite service, including in-house food supply, is taxable at 18%.

5. Ruling on Question Outside the Scope of Section 97(2):

The fifth question raised by the Applicant did not fall within the scope of Section 97(2) of the GST Act, and hence, no ruling was issued on this matter.

Ruling Summary:

- The hostel accommodation services provided by the Applicant are not eligible for GST exemption under Entry 12.
- The Applicant must register for GST if their turnover exceeds twenty lakh rupees.
- Hostel accommodation services are taxable at 9% CGST + 9% SGST.
- In-house food supply, as part of composite services, is taxable at 18%.
- No ruling was issued for the fifth question as it was outside the scope of the GST Act provisions.

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