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

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 as they are meant for temporary stay, distinguishing them from family residential properties. The Applicant must register for GST if turnover exceeds twenty lakh rupees. Hostel accommodation services are taxable at 18% GST (9% CGST + 9% SGST) under composite supply provisions, where accommodation is the principal service and food/other services are ancillary, charged as a consolidated package.

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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 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.

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