2023 (9) TMI 1576 - AAR - GST

Hostel accommodation services don't qualify for GST exemption, taxable at 18% as composite supply with food services

IN RE : Tvl. Thulasi Ladies Hostel

AAR Tamil Nadu ruled that hostel accommodation services do not qualify for GST exemption under residential dwelling provisions. The Authority held that ... Eligibility for GST exemption on hostel accommodation services - whether the hostel accommodation being provided by the Applicant to students and working women qualify to be a residential dwelling for use as residence as described in the above entry and thus eligible for exemption or not? - HELD THAT:- The term 'residential dwelling' has not been defined either under CGST Act or under Notification No. 12/2017. However, under the erstwhile service tax law, in paragraph 4.13.1 of the Taxation of Services: An Education Guide dated 20.06.2012', issued by the CBIC, the expression residential dwelling' has been interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, campsite, lodge, house boat, or like places meant for temporary stay. It is clear that the purpose and objective of the notification is nothing but to avoid taxing residential properties taken on rent by family or individuals and the benefit of exemption is not extended to the premises which do not qualify as residential dwelling for use as residence. Further, unless the twin conditions of 'renting of residential dwelling' for 'use as residence,' being inter-twined and inseparable, are not met, the exemption is not available. As per settled position in taxation laws, especially when exemptions or concessions or benefits are to be availed, the interpretation is to be literally and strictly construed and not in liberal terms. In effect, the place rented out is neither a residential dwelling nor being rented out for use as residence. It is clear that hostel accommodation is not equivalent to residential accommodation and hence the services supplied by the Applicant would not be eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT(Rate) dated 28.06.2017 and under the identical Notification under the TNGST Act, 2017, and also under Entry 13 of Exemption Notification No.09/2017-IT(Rate) dated 28.06.2017, as amended. Requirement for GST registration based on turnover - HELD THAT:- It is clear that the Applicant's service of providing hostel accommodation is not eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT(Rate) dated 28.06.2017 as amended, the Applicant is very much be required to take registration under the GST Enactments, as the arrangement between the Applicant and the hostel occupants is liable to be classified as transaction in the course of furtherance of business and hence, as per Section 7(1)(a) of CGST Act, 2017 read with Entry No. 2(b) of the Second Schedule to the CGST Act, the said transaction constitutes 'supply' - the Applicant is required to get themselves registered in the state of Tamil Nadu, if their aggregate turnover in a financial year exceeds twenty lakh rupees. Taxability and applicable GST rate for hostel accommodation services - HELD THAT:- It is observed that hotels are meant for a temporary stay (2-5 days) and have lot of facilities and staff, but hostels are used for a longer period and have basic facilities with minimal staff required by the inmates to stay at a reasonable rate. Therefore, hostel services cannot be equated to a hotel accommodation and hotel GST rates cannot be applied to a hostel. Therefore, the supply of hostel accommodation services (Tariff heading 9963) is taxable @ 9% CGST + 9% SGST under Sl. No. 7(vi) of the above Notification (Sl.No. 7 (ix) as per original notification). Tax treatment of in-house food supply as part of hostel services - HELD THAT:- The natural bundle has the characteristic of where one service is the main service and the other services are ancillary services which help in better enjoyment of the main service. Further, there is a single price for the combined services. The principal activity of the Applicant is supply of accommodation Services. While providing such services, the charges are being realised in a consolidated manner for the value of food and other like services rendered. The Applicant has stated that they do not charge separately for the other services provided by them. Thus, the services provided by the Applicant are composite in nature - As per Section 8 of the CGST Act, 2017, for a Composite supply, the tax rate on the principal supply will be treated as the tax rate on the given composite supply. Since the Applicant provides a number of services in a composite manner, the hostel accommodation services provided by the Applicant, being the principal supply, which is taxable @18%, will be tax rate for the composite supply provided by them. 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 aggregate turnover.3. Applicable tariff heading and tax rate for hostel accommodation services.4. Tax implications of supplying in-house food as part of hostel services.5. Scope of ruling under Section 97(2) of the GST Act.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), which exempts such services from GST. The judgment clarified that the term 'residential dwelling' is not defined in the CGST Act but is generally understood as a place where people reside permanently or for an extended period. Hostels, which provide temporary lodging and additional services like food and housekeeping, do not fit this definition. The ruling emphasized that hostels are commercial establishments and not residential dwellings. Therefore, the services provided by the applicant do not qualify for the GST exemption under the specified entry.2. Requirement for GST Registration:The judgment stated that since the hostel accommodation services provided by the applicant are not exempt, they constitute a taxable supply under Section 7(1)(a) of the CGST Act. Consequently, 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 Tariff Heading and Tax Rate:The ruling determined that the supply of hostel accommodation services falls under Tariff heading 9963, which pertains to accommodation, food, and beverage services. According to Notification No. 11/2017, Central Tax (Rate), the applicable tax rate is 9% CGST + 9% SGST under Sl.No. 7(vi), as amended by Notification No. 20/2019.4. Tax Implications of Supplying In-House Food:The judgment addressed whether the supply of in-house food to hostel inmates is exempt as part of a composite supply. It was concluded that the primary supply is the hostel accommodation service, which is taxable at 18%. Since the food service is provided in conjunction with the accommodation and is not separately charged, it is considered a composite supply. Therefore, the tax rate for the composite supply is determined by the principal supply, which is the hostel accommodation service, taxed at 18%.5. Scope of Ruling:The fifth question raised by the applicant did not fall within the scope of Section 97(2) of the GST Act, and thus, no ruling was issued on this matter.Conclusion:The ruling concluded that the applicant's services of providing hostel accommodation are not eligible for GST exemption under the specified notification. The applicant must register for GST if their turnover exceeds the threshold limit, and the applicable tax rate for their services is 18% for the composite supply of accommodation and food.