Hostel accommodation services not exempt from GST as they don't qualify as residential dwellings, taxable at 18%

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 serve temporary accommodation purposes, distinguishing them from family residences. The applicant must register for GST if turnover exceeds twenty lakh rupees. 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 a composite supply taxable at the principal supply rate of 18%.

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Issues Involved:

1. Eligibility for GST exemption on hostel accommodation services.
2. Requirement for GST registration.
3. Tariff heading and tax rate for hostel accommodation services.
4. Taxability of in-house food supply as a composite service.
5. Admissibility of certain questions under Section 97(2) of the GST Act.

Detailed Analysis:

1. Eligibility for GST Exemption on 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. The notification exempts services by way of renting residential dwellings for use as residence. However, the term "residential dwelling" is not defined in the CGST Act. The judgment noted that in trade parlance, a residential dwelling is a home, not including temporary accommodations like hostels. The applicant's hostel, providing accommodation to students and working women, was deemed more akin to a commercial establishment rather than a residential dwelling. The hostel's operation involved renting rooms on a per-bed basis with additional services, thus constituting a business activity. Consequently, the accommodation provided did not qualify as a residential dwelling, and the exemption was not applicable.

2. Requirement for GST Registration:

Given that the hostel accommodation service does not qualify for exemption, the applicant is required to register under the GST Act if their aggregate turnover exceeds twenty lakh rupees in a financial year. The service was deemed a "supply" under Section 7(1)(a) of the CGST Act, necessitating registration as per Section 22 of the GST Act.

3. Tariff Heading and Tax Rate for Hostel Accommodation Services:

The services provided by the applicant fall under Tariff heading 9963, which pertains to accommodation, food, and beverage services. The applicable tax rate is 9% CGST and 9% SGST, as per Sl.No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), dated 28.06.2017, as amended. This classification reflects the commercial nature of the hostel services, distinguishing them from residential accommodations.

4. Taxability of In-House Food Supply as a Composite Service:

The applicant also provided in-house food services to hostel inmates, which were treated as part of a composite supply. According to Section 2(30) of the GST Act, a composite supply involves two or more services naturally bundled together, with one being the principal supply. In this case, hostel accommodation was the principal supply, and the tax rate for the composite supply was determined by the tax rate applicable to the principal supply, which is 18%.

5. Admissibility of Certain Questions 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 that question.

Ruling Summary:

- The hostel accommodation services are not exempt from GST under the specified notifications.
- The applicant must register for GST if their turnover exceeds the specified threshold.
- The applicable tax rate for hostel accommodation services is 18% (9% CGST + 9% SGST).
- In-house food supply is part of a composite supply with the principal supply being taxable at 18%.
- No ruling was provided for the question outside the scope of Section 97(2).

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