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

AAR Tamil Nadu ruled that hostel accommodation services provided to students and working women do not qualify as "residential dwelling for use as residence" under GST exemption Entry 12. The accommodation constitutes taxable business supply requiring registration if turnover exceeds Rs. 20 lakh annually. Hostel services fall under tariff heading 9963, taxable at 18% GST (9% CGST + 9% SGST). In-house food supply forms composite supply with accommodation as principal service, attracting 18% tax rate on entire bundled service.

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1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core legal questions:

1. Whether the hostel accommodation services provided by the Applicant are eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and the identical Notification under the TNGST Act, 2017, and Entry 13 of Exemption Notification No.09/2017-IT (Rate) dated 28.06.2017, as amended.

2. Whether the Applicant is required to register under the GST Enactments if their aggregate turnover exceeds twenty lakh rupees in a financial year.

3. What is the applicable tariff heading and rate of tax for the supply of hostel accommodation servicesRs.

4. Whether the incidental activity of supplying in-house food to hostel inmates is exempt as a composite supply if the hostel accommodation is deemed exempt.

5. Whether the Applicant's other query falls within the scope of Section 97(2) of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Exemption under GST Notifications

• Relevant Legal Framework and Precedents: The Applicant claimed exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) and similar provisions under the TNGST Act, which exempts services by way of renting residential dwellings for use as residence.
• Court's Interpretation and Reasoning: The court interpreted "residential dwelling" as a place typically used as a home, not including accommodations like hostels, which are commercial in nature.
• Key Evidence and Findings: The court found that the Applicant's services included additional amenities and were not purely residential. The premises were rented out on a per-bed basis, indicating a commercial operation.
• Application of Law to Facts: The court concluded that the Applicant's hostel services did not meet the criteria for exemption as they were not renting a residential dwelling for use as residence.
• Treatment of Competing Arguments: The Applicant's reliance on the Karnataka High Court's decision in Taghar Vasudeva Ambrish was noted, but the court highlighted that the decision was under appeal and not binding.
• Conclusions: The Applicant's hostel services were not eligible for exemption under the cited GST notifications.

Issue 2: Requirement for GST Registration

• Relevant Legal Framework: Section 22 of the CGST Act mandates registration for suppliers whose turnover exceeds twenty lakh rupees.
• Court's Interpretation and Reasoning: The Applicant's services constituted a "supply" under GST, necessitating registration if turnover thresholds were met.
• Conclusions: The Applicant must register under GST if their turnover exceeds the specified limit.

Issue 3: Tariff Heading and Tax Rate for Hostel Services

• Relevant Legal Framework: Notification No. 11/2017-Central Tax (Rate) outlines tax rates for various services.
• Court's Interpretation and Reasoning: Hostel services fall under the tariff heading 9963 and are taxable at 9% CGST + 9% SGST.
• Conclusions: The applicable tax rate for the Applicant's services is 18% GST.

Issue 4: Taxability of In-house Food Supply

• Relevant Legal Framework: Section 2(30) of the GST Act defines composite supply.
• Court's Interpretation and Reasoning: The supply of food, being part of a composite supply with accommodation, is taxed at the rate applicable to the principal supply.
• Conclusions: The composite supply, including food, is taxable at 18% GST.

Issue 5: Scope of Ruling

• Conclusions: The court 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.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes: "Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification."
• Core Principles Established: The court emphasized the commercial nature of hostel accommodations, distinguishing them from residential dwellings intended for use as a residence.
• Final Determinations on Each Issue: The Applicant's services were not exempt from GST, requiring registration and taxation at 18% for composite supplies.

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