Hostel accommodation services don't qualify for GST exemption 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 Rs. 20 lakh. Hostel accommodation services are taxable at 18% GST (9% CGST + 9% SGST) under composite supply provisions, where accommodation is the principal service bundled with ancillary services like food at a consolidated price.

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Issues Involved:

1. Eligibility for GST exemption for hostel accommodation services under Entry 12 of Exemption Notification No. 12/2017-CT (Rate).
2. Requirement for GST registration based on turnover.
3. Applicable GST rate for hostel accommodation services.
4. Tax treatment for supply of in-house food to hostel inmates as a composite supply.
5. Admissibility of the fifth question under Section 97(2) of the GST Act.

Issue-Wise Detailed Analysis:

1. Eligibility for GST Exemption for 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), which covers "services by way of renting of residential dwelling for use as residence." The judgment clarified that the term "residential dwelling" is not defined under the CGST Act, but under normal trade parlance, it refers to a place where people reside as a home, not including temporary accommodations like hostels. The Applicant's hostel, being a commercial establishment providing temporary lodging, does not qualify as a "residential dwelling." Therefore, the services supplied by the Applicant are not eligible for the said exemption.

2. Requirement for GST Registration:

Since the Applicant's services do not qualify for exemption, they are required to register under GST if their aggregate turnover exceeds twenty lakh rupees in a financial year, as per Section 22 of the CGST Act, 2017. The judgment emphasized that the arrangement between the Applicant and the hostel occupants constitutes a "supply" under Section 7(1)(a) of the CGST Act, necessitating registration.

3. Applicable GST Rate for Hostel Accommodation Services:

The judgment determined that the supply of hostel accommodation services falls under Tariff heading 9963 (Accommodation, food, and beverage services) and is taxable at 9% CGST + 9% SGST under Sl.No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), as amended. The decision differentiated hostel services from hotel accommodations, noting that hostels provide longer-term stays with basic facilities, unlike hotels.

4. Tax Treatment for Supply of In-House Food as a Composite Supply:

The Applicant also provides in-house food and other services to hostel inmates for consolidated charges, which constitutes a composite supply. According to Section 8 of the CGST Act, 2017, the tax rate on the principal supply applies to the composite supply. Since the principal supply is the hostel accommodation service, taxable at 18%, this rate applies to the composite supply of accommodation and food services.

5. Admissibility of the Fifth Question:

The judgment did not issue a ruling on the fifth question as it did not fall within the scope of Section 97(2) of the GST Act.

Ruling Summary:

- Hostel accommodation services are not exempt under Entry 12 of Exemption Notification No. 12/2017-CT (Rate).
- The Applicant must register for GST if turnover exceeds twenty lakh rupees.
- Hostel accommodation services are taxable at 9% CGST + 9% SGST.
- The composite supply of accommodation and food is taxable at 18%.
- No ruling on the fifth question due to its inadmissibility under the GST Act.

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