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 the composite supply provisions, with accommodation being the principal supply. In-house food and other ancillary services provided with accommodation are treated as composite supply taxable at the principal supply rate.

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Issues Involved:

1. Eligibility for GST exemption on hostel accommodation under specific exemption notifications.
2. Requirement for GST registration based on turnover.
3. Applicable GST rate and tariff heading for hostel accommodation services.
4. Tax implications on the supply of in-house food as part of hostel services.
5. Scope of ruling under GST Act.

Detailed Analysis:

1. Eligibility for GST Exemption on Hostel Accommodation:

The primary issue was whether the hostel accommodation provided by the applicant qualifies for GST exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) and similar provisions under TNGST Act, 2017. The exemption applies to "services by way of renting of residential dwelling for use as residence." The judgment highlighted that "residential dwelling" is not defined in the CGST Act, but under the erstwhile service tax regime, it was interpreted in trade parlance as any residential accommodation excluding temporary stay facilities like hotels or hostels. The ruling concluded that the applicant's hostel does not qualify as a "residential dwelling" since it provides temporary lodging similar to hotels and is not used as a residence. Therefore, the applicant's services are not eligible for exemption under the cited notifications.

2. Requirement for GST Registration:

The judgment addressed the applicant's obligation to register for GST if their aggregate turnover exceeds twenty lakh rupees, as per Section 22 of the CGST Act, 2017. The applicant's provision of hostel accommodation constitutes a "supply" under Section 7(1)(a) of the CGST Act, thus requiring registration if the turnover threshold is met.

3. Applicable GST Rate and Tariff Heading:

The ruling clarified that the supply of hostel accommodation services falls under Tariff heading 9963 and is taxable at 9% CGST + 9% SGST under Sl.No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), as amended. The judgment emphasized that hostel services cannot be equated with hotel accommodation, which is subject to different GST rates.

4. Tax Implications on the Supply of In-House Food:

The applicant's provision of in-house food to hostel inmates was considered part of a composite supply, where the principal supply is hostel accommodation. As per Section 8 of the CGST Act, the tax rate applicable to the principal supply (hostel accommodation) applies to the entire composite supply. Therefore, the composite supply, including food services, is taxable at 18%.

5. Scope of Ruling under GST Act:

The judgment noted that the fifth question raised by the applicant did not fall within the scope of Section 97(2) of the GST Act, and therefore, no ruling was issued on that matter.

Ruling:

- The hostel accommodation services provided by the applicant are not exempt from GST.
- The applicant must register for GST if the turnover exceeds the specified threshold.
- The applicable GST rate for hostel accommodation services is 18% (9% CGST + 9% SGST).
- The supply of in-house food as part of hostel services is taxable at the rate applicable to the principal supply, i.e., 18%.
- No ruling was issued on the fifth question as it was outside the scope of the GST Act provisions.

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