Hostel accommodation services don't qualify for GST exemption under residential dwelling provisions, taxable at 18%

AAR Tamil Nadu ruled that hostel accommodation services do not qualify for GST exemption under residential dwelling provisions. The authority held that hostels are not residential dwellings for residence use, requiring strict interpretation of exemption notifications. The applicant must register for GST if turnover exceeds Rs. 20 lakh. Hostel accommodation services are taxable at 18% GST (9% CGST + 9% SGST) under composite supply provisions, with accommodation being the principal supply despite bundled food and other services being charged consolidatedly.

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Issues Involved:

1. Eligibility for GST exemption for hostel accommodation services.
2. Requirement for GST registration based on turnover.
3. Applicable tariff heading and tax rate for hostel accommodation services.
4. Taxability of in-house food supply as part of a composite supply.
5. Scope of ruling under Section 97(2) of the GST Act.

Issue-wise Detailed Analysis:

1. Eligibility for GST Exemption for Hostel Accommodation Services:

The primary issue was whether the hostel accommodation provided by the applicant qualifies for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) and its equivalent under the TNGST Act. The term "residential dwelling" is not defined in the CGST Act, but the applicant argued that their hostel should be considered as such. The judgment clarified that a "residential dwelling" typically refers to a place used as a home by individuals or families, without additional services like food or housekeeping. Hostels, by contrast, provide temporary lodging and additional services, thereby classifying them as commercial establishments rather than residential dwellings. Consequently, the applicant's hostel services do not qualify for the exemption, as they do not meet the criteria of "renting of residential dwelling for use as residence."

2. Requirement for GST Registration Based on Turnover:

The judgment addressed whether the applicant must register for GST. Since the provision of hostel accommodation is not exempt, it constitutes a taxable supply. Under Section 22 of the GST Acts, any supplier whose aggregate turnover exceeds twenty lakh rupees in a financial year is required to register for GST. Therefore, the applicant must register if their turnover surpasses this threshold.

3. Applicable Tariff Heading and Tax Rate for Hostel Accommodation Services:

The applicant sought clarification on the tariff heading and tax rate applicable to their services. The judgment identified the relevant tariff heading as 9963, which pertains to accommodation, food, and beverage services. The services provided by the applicant fall under Sl.No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), as amended, making them taxable at 9% CGST and 9% SGST.

4. Taxability of In-House Food Supply as Part of a Composite Supply:

The applicant questioned whether the supply of in-house food to hostel inmates would be exempt if the hostel accommodation itself were exempt. The judgment clarified that since the accommodation service is not exempt, the supply of food, which is part of a composite supply, is also taxable. As per Section 8 of the CGST Act, the tax rate for the principal supply (hostel accommodation) applies to the entire composite supply, resulting in a tax rate of 18% for the combined services.

5. Scope of Ruling Under Section 97(2) of the GST Act:

The applicant's fifth question did not fall within the scope of Section 97(2) of the GST Act, which outlines the matters on which advance rulings can be sought. Consequently, no ruling was issued on this question.

Ruling Summary:

- Hostel accommodation services are not eligible for exemption under the specified notifications.
- The applicant must register for GST if their turnover exceeds twenty lakh rupees.
- Hostel accommodation services are taxable at 9% CGST and 9% SGST.
- The supply of in-house food as part of a composite supply is taxable at 18%.
- No ruling was issued for the fifth question as it was outside the scope of Section 97(2).

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