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 determined that hostels differ from residential dwellings as they provide temporary accommodation similar to hotels but with basic facilities for longer stays. Hostel services are taxable at 18% GST (9% CGST + 9% SGST) under composite supply rules, with accommodation being the principal service. The applicant must register for GST if turnover exceeds twenty lakh rupees annually, as hostel services constitute taxable supply under GST law.

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Issues Involved:

1. Eligibility for GST exemption on hostel accommodation under specific exemption notifications.
2. Tariff heading and rate of taxability for hostel accommodation services.
3. Taxability of incidental supply of in-house food in hostels as a composite supply.
4. Admissibility of certain questions under Section 97(2) of the GST Act.

Issue-wise Detailed Analysis:

1. Eligibility for GST Exemption on Hostel Accommodation:

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) dated 28.06.2017, which covers "services by way of renting of residential dwelling for use as residence." The term "residential dwelling" is not defined in the CGST Act, but is generally understood as a place where people reside as a home, not including places meant for temporary stay like hotels or hostels. The applicant's hostel provides accommodation with ancillary services, which is more akin to sociable accommodation rather than a residential dwelling. The premises are rented out on a per-bed basis with additional services, indicating a business operation rather than a residential lease. Furthermore, regulatory requirements for hostels in Tamil Nadu classify them as non-residential, reinforcing that the applicant's hostel does not qualify as a residential dwelling. Thus, the services provided do not meet the exemption criteria, and the exemption is not applicable.

2. Tariff Heading and Rate of Taxability for Hostel Accommodation Services:

The applicant questioned the tariff heading and applicable tax rate for their hostel accommodation services. The services fall under Tariff heading 9963 (Accommodation, food, and beverage services) and are taxable at 9% CGST + 9% SGST under Sl.No. 7(vi) of the Notification No. 11/2017, Central Tax (Rate), dated 28.06.2017, as amended. Hostel services, which provide longer-term accommodation with basic facilities, cannot be equated with hotel accommodations, which are typically for short stays and offer more amenities. Therefore, the specific GST rate for hostel services applies.

3. Taxability of Incidental Supply of In-house Food as a Composite Supply:

The applicant also inquired whether the incidental supply of in-house food to hostel inmates would be exempt as part of a composite supply. Since the primary service of providing hostel accommodation is not exempt, the incidental supply of food, which is bundled with accommodation services, is considered a composite supply. As per Section 8 of the CGST Act, the tax rate applicable to the principal supply (hostel accommodation) applies to the entire composite supply. Thus, the composite supply, including food services, is taxable at 18%.

4. Admissibility of Certain Questions Under Section 97(2) of the GST Act:

The fourth question raised by the applicant did not fall within the scope of Section 97(2) of the GST Act, and therefore, no ruling was issued on this question.

Ruling:

- The hostel accommodation services provided by the applicant are not eligible for GST exemption under the specified notifications.
- The services fall under Tariff heading 9963 and are taxable at 18% (9% CGST + 9% SGST).
- The supply of in-house food is part of a composite supply with the principal service being taxable at 18%.
- No ruling was provided for the fourth question as it was outside the scope of Section 97(2) of the GST Act.

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