2023 (9) TMI 1583 - AAR - GST

Hostel accommodation services don't qualify for GST exemption under residential dwelling provisions, taxable at 18%

IN RE : Tvl. CPP Grand 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 for hostel accommodation services.2. Requirement for GST registration based on turnover.3. Applicable GST rate for hostel accommodation services.4. Taxability of incidental supply of in-house food as a composite supply.5. Scope of ruling under Section 97(2) of the GST Act.Detailed Analysis:1. Eligibility for GST Exemption for Hostel Accommodation Services:The primary issue was whether the hostel accommodation provided by the applicant qualifies for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017. This entry exempts 'services by way of renting of residential dwelling for use as residence.' The judgment clarified that the term 'residential dwelling' is not explicitly defined under the CGST Act but is understood in trade parlance as excluding temporary accommodations like hotels or hostels. The ruling emphasized that the applicant's hostel services, which include additional amenities such as food and housekeeping, do not fit the definition of 'residential dwelling' as they are more akin to commercial lodging services. Consequently, the hostel services do not qualify for the exemption, as they do not meet the criteria of being a residential dwelling rented for use as a residence.2. Requirement for GST Registration Based on Turnover:The judgment addressed the requirement for GST registration, stating that the applicant must register under the GST Acts if their aggregate turnover exceeds twenty lakh rupees in a financial year. This requirement arises because the hostel services provided by the applicant are considered a taxable supply under Section 7(1)(a) of the CGST Act, 2017, as they are provided in the course of business.3. Applicable GST Rate for Hostel Accommodation Services:The applicable GST rate for the hostel accommodation services was determined under Tariff heading 9963. The ruling specified that these services are taxable at 9% CGST + 9% SGST under Sl.No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), dated 28.06.2017, as amended. The judgment differentiated hostel services from hotel accommodations, noting that hostels provide longer-term stays with basic facilities, unlike hotels which offer temporary stays with extensive amenities.4. Taxability of Incidental Supply of In-house Food as a Composite Supply:The judgment examined whether the supply of in-house food to hostel inmates is a composite supply. It concluded that since the primary service provided by the applicant is hostel accommodation, which is taxable at 18%, the incidental supply of food is part of a composite supply. As per Section 8 of the CGST Act, 2017, the tax rate for the principal supply applies to the entire composite supply. Therefore, the combined services, including food, are taxable at 18%.5. Scope of 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, and thus, no ruling was issued on this matter. The judgment reiterated that only questions falling within the specified categories under Section 97(2) can be addressed in an advance ruling.Ruling Summary:- 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 annual turnover exceeds twenty lakh rupees.- The services fall under Tariff heading 9963 and are taxable at 18% GST (9% CGST + 9% SGST).- The incidental supply of in-house food is part of a composite supply, taxable at the rate applicable to the principal supply (18%).- No ruling was issued for the question outside the scope of Section 97(2) of the GST Act.