2023 (9) TMI 1594 - AAR - GST

Hostel accommodation services for students and working women taxable at 18% GST, not exempt as residential dwelling

The AAR Tamil Nadu ruled that hostel accommodation services provided to students and working women do not qualify for GST exemption as 'residential ... 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 on hostel accommodation under Entry 12 of Exemption Notification No. 12/2017-CT (Rate).2. Requirement for GST registration for the applicant.3. Applicable tariff heading and tax rate for hostel accommodation services.4. Taxability of supply of in-house food to hostel inmates as a composite supply.5. Scope of ruling under Section 97(2) of the GST Act.Issue-wise Detailed Analysis:1. Eligibility for GST Exemption: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). The judgment emphasized that the term 'residential dwelling' is not explicitly defined in the CGST Act. However, based on the erstwhile service tax law and common understanding, a residential dwelling is typically a place where people reside as a home, without including amenities like food or housekeeping, which are characteristic of hostels. The applicant's hostel, offering accommodation on a per-bed basis with additional services, does not qualify as a 'residential dwelling' for use as a residence. The judgment also noted that hostels are considered commercial establishments under various regulatory provisions in Tamil Nadu. Consequently, the services provided by the applicant do not meet the exemption criteria, as hostels are not equivalent to residential accommodations.2. Requirement for GST Registration:The judgment concluded that the applicant is required to register under the GST Act if their aggregate turnover exceeds twenty lakh rupees in a financial year. The provision of hostel accommodation services is considered a taxable supply under Section 7(1)(a) of the CGST Act, 2017, and therefore, the applicant must comply with the registration requirements stipulated in Section 22 of the GST Act.3. Applicable Tariff Heading and Tax Rate:The judgment determined that the supply of hostel accommodation services falls under Tariff heading 9963. It is taxable at the rate of 9% CGST and 9% SGST, as specified under Sl.No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), dated 28.06.2017, as amended by Notification No. 20/2019 Central Tax (Rate) dated 30.09.2019. The judgment clarified that hostel services, which are distinct from hotel accommodations, are subject to this tax rate.4. Taxability of In-House Food Supply:The judgment addressed the taxability of supplying in-house food to hostel inmates. It was determined that the provision of food, along with accommodation and other services, constitutes a composite supply. According to Section 8 of the CGST Act, 2017, the tax rate applicable to the principal supply (hostel accommodation services) applies to the entire composite supply. Therefore, the tax rate for the composite supply, including in-house food, is 18%.5. Scope of Ruling:The judgment noted that no ruling could be issued for the fifth question raised by the applicant, as it did not fall within the scope of Section 97(2) of the GST Act. The scope of advance ruling is limited to specific questions outlined in the Act, and the applicant's fifth question did not meet these criteria.Ruling Summary:- The hostel accommodation services provided by the applicant are not exempt from GST under the specified exemption 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).- The supply of in-house food is part of a composite supply and is taxed at the rate applicable to the principal supply.- No ruling was issued for the fifth question, as it was outside the scope of Section 97(2) of the GST Act.