Hostel accommodation services don't qualify for GST exemption under residential dwelling provisions, 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 differ from family/individual residential rentals, requiring strict interpretation of exemption notifications. The applicant must register for GST if turnover exceeds Rs. 20 lakh. Hostel accommodation is taxable at 18% GST (9% CGST + 9% SGST) under tariff heading 9963. When food and other services are bundled with accommodation at a single consolidated price, it constitutes composite supply taxable at the principal supply rate of 18%.

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Issues Involved:

1. Eligibility for GST exemption on hostel accommodation under Entry 12 of Exemption Notification No. 12/2017-CT (Rate).
2. Requirement for registration under GST if the aggregate turnover exceeds twenty lakh rupees.
3. Applicable tariff heading and tax rate for the supply of hostel accommodation services.
4. Taxability of in-house food supply to hostel inmates as part of a composite supply.
5. Scope of ruling under Section 97(2) of the GST Act.

Issue-wise Detailed Analysis:

1. Eligibility for GST Exemption on Hostel Accommodation:

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), which pertains to "services by way of renting of residential dwelling for use as residence." The term "residential dwelling" was not defined under the CGST Act. However, it was interpreted in normal trade parlance as any residential accommodation excluding places meant for temporary stay like hotels, motels, inns, etc. The judgment emphasized that the applicant's hostel, which provides temporary lodging akin to a hotel, does not qualify as a "residential dwelling" and thus is not eligible for the exemption. The ruling also noted that the applicant's hostel is a commercial establishment and not a residential dwelling, as evidenced by various licenses and certificates obtained for running a hostel.

2. Requirement for Registration under GST:

The judgment clarified that since the applicant's service of providing hostel accommodation is not exempt, the applicant is required to register under GST if their aggregate turnover in a financial year exceeds twenty lakh rupees. This requirement is in accordance with Section 22 of the GST Acts, which mandates registration for suppliers of services exceeding the specified turnover threshold.

3. Applicable Tariff Heading and Tax Rate:

The supply of hostel accommodation services by the applicant falls under Tariff heading 9963, which pertains to "Accommodation, food, and beverage services." The ruling determined that the applicable tax rate is 9% CGST + 9% SGST, as per Sl.No. 7(vi) of Notification No. 11/2017, Central Tax (Rate), as amended. The judgment distinguished hostel services from hotel accommodation, noting that hostels are used for longer stays with basic facilities, whereas hotels are for temporary stays with more amenities.

4. Taxability of In-house Food Supply as Composite Supply:

The judgment addressed whether the incidental activity of supplying in-house food to hostel inmates would be exempt as part of a composite supply. It was determined that the applicant's services are composite in nature, with accommodation being the principal supply. As per Section 8 of the CGST Act, the tax rate on the principal supply applies to the composite supply. Therefore, the tax rate for the composite supply, including in-house food, is 18%.

5. Scope of Ruling under Section 97(2) of the GST Act:

The judgment noted that no ruling could be issued for the fifth question raised by the applicant, as it did not fall under the scope of Section 97(2) of the GST Act. This section outlines the specific matters on which advance rulings can be sought, and the question posed did not align with those criteria.

Ruling Summary:

- The applicant's hostel accommodation services are not eligible for GST exemption under the specified notification entries.
- The applicant must register under GST if their turnover exceeds the threshold.
- The applicable tax rate for hostel accommodation services is 18%.
- The supply of in-house food is part of a composite supply, taxable at the same rate as the principal supply.
- No ruling was issued for the question outside the scope of Section 97(2).

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