Hostel accommodation services taxable at 18% GST, not exempt as residential dwelling under composite supply rules

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 provide temporary accommodation similar to hotels, not permanent residence. The applicant must register for GST if turnover exceeds Rs. 20 lakh. Hostel accommodation services are taxable at 18% GST (9% CGST + 9% SGST). When food and other services are bundled with accommodation at a single consolidated 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 specific notification entries.
2. Requirement for GST registration based on turnover.
3. Applicable GST rate and tariff heading for hostel accommodation services.
4. Tax treatment of in-house food supply as part of composite services.
5. Scope of questions eligible for 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) dated 28.06.2017 and similar entries under the TNGST and IT Acts. The ruling clarified that the term "residential dwelling" is not defined under the CGST Act, but generally refers to a home where people reside permanently. Hostels, providing temporary lodging, do not qualify as "residential dwellings" for use as residence. The ruling emphasized that hostels are commercial establishments providing sociable accommodation, not residential dwellings. Therefore, the exemption under the specified notification entries is not applicable to the applicant's services.

2. Requirement for GST Registration:

The ruling stated that since the applicant's services do not qualify for exemption, they are considered a taxable supply under the GST Act. According to Section 22 of the GST Act, any supplier with an aggregate turnover exceeding twenty lakh rupees in a financial year must register for GST. Therefore, the applicant is required to register for GST if their turnover exceeds this threshold.

3. Applicable GST Rate and Tariff Heading:

The supply of hostel accommodation services falls under Tariff heading 9963, which pertains to accommodation, food, and beverage services. The applicable GST 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 by Notification No. 20/2019. The ruling differentiated hostel services from hotel accommodations, noting that hostels provide longer-term stays with basic facilities, unlike hotels.

4. Tax Treatment of In-house Food Supply:

The ruling addressed whether the supply of in-house food to hostel inmates is exempt as part of a composite supply. It was determined that the applicant provides a composite supply of services, with hostel accommodation being the principal supply. As such, the tax rate applicable to the principal supply, which is 18%, applies to the entire composite supply, including food services.

5. Scope of Questions Eligible for Advance Ruling:

The fifth question raised by the applicant was deemed outside the scope of Section 97(2) of the GST Act, and thus, no ruling was issued for it. This section outlines specific matters on which advance rulings can be sought, and the applicant's question did not fall within these parameters.

Ruling:

- The hostel accommodation services provided by the applicant are not eligible for GST exemption under the specified notification entries.
- The applicant must register for GST if their aggregate turnover exceeds twenty lakh rupees in a financial year.
- The hostel accommodation services are taxable at 9% CGST and 9% SGST under the specified tariff heading.
- The supply of in-house food is part of a composite supply, taxable at 18%, the rate applicable to the principal supply.
- No ruling was issued for the fifth question as it was outside the scope of the advance ruling provisions.

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