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 register for GST if turnover exceeds twenty lakh rupees. 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 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.

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