Hostel accommodation services not exempt from GST under residential dwelling provisions, taxable at 18%

The 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 equivalent to residential dwellings and are not rented for use as residence, requiring strict interpretation of exemption notifications. The applicant must obtain GST registration if turnover exceeds Rs. 20 lakh. Hostel accommodation services are taxable at 18% GST (9% CGST + 9% SGST) under tariff heading 9963. When food and other services are bundled with accommodation at a single price, it constitutes composite supply taxable at the principal supply rate of 18%.

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Issues Involved:

1. Eligibility of hostel accommodation for GST exemption under specific notifications.
2. Requirement for GST registration based on aggregate turnover.
3. Tax classification and rate for hostel accommodation services.
4. Tax implications for in-house food supply as part of composite services.
5. Scope of ruling under Section 97(2) of the GST Act.

Detailed Analysis:

1. Eligibility of Hostel Accommodation 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 term "residential dwelling" is not defined in the CGST Act, but under service tax law, it excludes places meant for temporary stay like hotels or hostels. The judgment found that the applicant's hostel provides temporary lodging akin to commercial establishments, not a permanent residence. Therefore, the accommodation does not qualify as a "residential dwelling" for exemption purposes. The court emphasized strict interpretation of exemption notifications, concluding that the applicant's services do not meet the exemption criteria.

2. Requirement for GST Registration:

The judgment determined that since the applicant's service of providing hostel accommodation is not exempt, it constitutes a "supply" under Section 7(1)(a) of the CGST Act. Thus, if the applicant's aggregate turnover exceeds twenty lakh rupees in a financial year, they are required to register for GST under Section 22 of the GST Acts.

3. Tax Classification and Rate for Hostel Accommodation Services:

The court classified the hostel accommodation services under Tariff heading 9963, which pertains to "Accommodation, food and beverage services." The applicable tax rate is 9% CGST and 9% SGST under Sl.No. 7(vi) of Notification No. 11/2017, as amended. The classification reflects the nature of the services provided, which are not equivalent to hotel accommodations but are taxable under the specified tariff heading.

4. Tax Implications for In-House Food Supply as Part of Composite Services:

The applicant's provision of in-house food along with accommodation was deemed a "composite supply" under Section 2(30) of the GST Act, where the principal supply is the hostel accommodation. As per Section 8 of the CGST Act, the tax rate for the principal supply applies to the composite supply. Therefore, the entire composite service, including food, is taxable at the rate applicable to the principal supply, which is 18%.

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

The court did not issue a ruling on the fifth question posed by the applicant, as it did not fall within the scope of Section 97(2) of the GST Act. This section outlines the specific matters on which advance rulings can be sought, and the question at hand was outside this scope.

Ruling Summary:

- Hostel accommodation services are not exempt under the specified GST notifications.
- The applicant must register for GST if turnover exceeds the threshold.
- Hostel accommodation services are taxable at 18% (9% CGST + 9% SGST).
- In-house food supply is part of a composite supply, taxable at 18%.
- No ruling issued for the fifth question as it falls outside the scope of Section 97(2).

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