2023 (9) TMI 1579 - AAR - GST

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

IN RE : Tvl. Ezhilagam Ladies Hostel

The AAR Tamil Nadu ruled that hostel accommodation services do not qualify for GST exemption under residential dwelling provisions. The authority held ... 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 on hostel accommodation under Entry 12 of Exemption Notification No. 12/2017-CT (Rate).2. Requirement for GST registration based on turnover.3. Taxability and tariff classification of hostel accommodation services.4. Tax treatment of in-house food supply as part of a composite supply.5. Scope of advance ruling under Section 97(2) of the GST Act.Issue-wise Detailed Analysis:1. Eligibility for GST Exemption on Hostel Accommodation:The primary question was whether the hostel accommodation provided by the applicant qualifies for GST exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate). The relevant entry exempts 'services by way of renting of residential dwelling for use as residence.' The term 'residential dwelling' is not defined in the CGST Act, but under the erstwhile service tax regime, it was interpreted as accommodation not including hotels, motels, inns, guest houses, or similar places meant for temporary stay. The judgment clarified that hostels, which provide temporary lodging and ancillary services like food and housekeeping, do not qualify as 'residential dwelling' for use as residence. Hostels are deemed commercial establishments, thus not eligible for the exemption intended for residential properties rented for use as a home. The judgment emphasized that exemption notifications are subject to strict interpretation, and the applicant's hostel services do not meet the exemption criteria.2. Requirement for GST Registration:The judgment concluded that since the applicant's hostel services do not qualify for exemption, they are required to register for GST if their aggregate turnover exceeds twenty lakh rupees in a financial year. The provision of hostel accommodation services constitutes a 'supply' under Section 7(1)(a) of the CGST Act, which mandates registration for service providers exceeding the turnover threshold.3. Taxability and Tariff Classification of Hostel Accommodation Services:The hostel accommodation services provided by the applicant fall under Tariff heading 9963, which covers 'Accommodation, food and beverage services.' The applicable tax rate is 9% CGST plus 9% SGST, as per Sl. No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), dated 28.06.2017, as amended. The judgment distinguished hostel services from hotel accommodations, noting that hostels are for longer stays with basic facilities, whereas hotels provide temporary stays with extensive amenities.4. Tax Treatment of In-House Food Supply as Part of a Composite Supply:The judgment addressed whether the supply of in-house food to hostel inmates is exempt as part of a composite supply. Since the primary service, hostel accommodation, is taxable, the entire composite supply, including food services, is subject to the same tax rate. The judgment applied the definition of 'composite supply' under Section 2(30) of the GST Act, which involves two or more naturally bundled supplies provided together. The principal supply, hostel accommodation, being taxable at 18%, determines the tax rate for the composite supply.5. Scope of Advance Ruling under Section 97(2) of the GST Act:The fifth question raised by the applicant did not fall within the scope of Section 97(2) of the GST Act, which outlines the specific issues on which an advance ruling can be sought. Consequently, no ruling was issued for this question.Ruling Summary:- The hostel accommodation services are not exempt under the specified GST notifications.- The applicant must register for GST if their turnover exceeds the threshold.- Hostel accommodation services are taxable at 18% GST.- The supply of in-house food is part of a composite supply and taxed at the same rate as accommodation services.- No ruling was provided for the fifth question as it was outside the scope of the advance ruling provisions.