2023 (9) TMI 1636 - AAR - GST

Hostel accommodation services don't qualify for GST residential dwelling exemption under Entry 12 Notification 12/2017

IN RE : Tvl. Arul Ladies Hostel

AAR Tamil Nadu ruled that hostel accommodation services provided to students and working women do not qualify as 'residential dwelling for use as ... Exemption from GST - hostel accommodation being provided by the Applicant to students and working women - qualify to be a residential dwelling for use as residence or not - requirement of registration under the GST Act if aggregate turnover exceeds twenty lakh rupees in a financial year - applicable tariff heading and rate of tax for the supply of hostel accommodation services by the Applicant - supply of in-house food to hostel inmates, composite supply or not - scope of Section 97(2) of the GST Act. 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, camp site, lodge, house boat, or like places meant for temporary stay - a house/ residential dwelling for occupation contains one or more rooms with one/part of the room being used as kitchen and the other/part as living room etc. But, in the instant case, a single house with two or more rooms where normally a single family resides, is subdivided, and let out to different persons and rent being collected on per bed basis with bundle of other services against a consideration clearly constitutes a business of supplying accommodation services along with ancillary services. Thus, on this count as well, the impugned accommodation thus provided does not qualify as a residential dwelling and thus the question of using the same as residence does not arise. 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. The hostel accommodation is not equivalent to residential accommodation and hence we hold that 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. Whether the Applicant is required to register under the GST Act if their aggregate turnover exceeds twenty lakh rupees in a financial year? - HELD 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. What is the applicable tariff heading and rate of tax for the supply of hostel accommodation services by the Applicant? - HELD 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, 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). Whether the supply of in-house food to hostel inmates is exempt as part of a composite supply? - 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 - 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. Scope of Section 97(2) of the GST Act - HELD THAT:- Thus, no ruling could be issued as the question put forth by the Applicant does not fall under the scope of Section 97(2) of the GST Act. Conclusion - i) The services by way of providing hostel accommodation supplied by the Applicant are not eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT(Rate) dated 28.06.2017. ii) 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. iii) The supply of services by way of providing hostel accommodation falls under Tariff heading 9963 and is taxable @ 9% CGST + 9% SGST under Sl.No. 7(vi) of the Notification No. 11/2017, Central Tax (Rate), dated 28.06.2017. iv) The hostel accommodation services provided by the Applicant, being the principal supply, which is taxable @18%, is the tax rate for the composite supply provided by them. ISSUES PRESENTED AND CONSIDERED 1. Whether services by way of providing hostel accommodation to students and working women qualify as 'services by way of renting of residential dwelling for use as residence' and are therefore exempt under the exemption notification covering Heading 9963/9972. 2. Whether the applicant supplying hostel accommodation is required to obtain GST registration under Section 22 if aggregate turnover exceeds the threshold, given the conclusion on issue (1). 3. The appropriate tariff heading and rate of tax for the supply of hostel accommodation services if not exempt. 4. Whether in-house food supplied to hostel inmates is exempt when supplied along with accommodation - i.e., whether the supply is a composite supply and, if so, which rate applies. 5. Admissibility of a specific question posed by the applicant falling outside the scope of Section 97(2) (not ruled upon). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether hostel accommodation qualifies as 'renting of residential dwelling for use as residence' (Legal framework) Legal framework: Exemption notification entry exempts 'services by way of renting of residential dwelling for use as residence' (Heading 9963/9972). The term 'residential dwelling' is not defined in the GST enactments; interpretive guidance under earlier service tax literature treats 'residential dwelling' as ordinary residential accommodation and excludes hotels, motels, guest houses, campsites, lodges, houseboats and similar places meant for temporary stay. Issue 1 - Precedent Treatment Precedent: Applicant relied on various judicial decisions (including a High Court decision holding hostels within 'residential dwelling') and other authorities about meaning of 'residence'. The Authority noted those decisions but distinguished them on facts or context and observed some are not decided under GST law. The Karnataka High Court decision concerning hostels was noted but the Authority recorded that a Special Leave Petition is pending against it. Issue 1 - Interpretation and reasoning Reasoning: The Authority analyzed attributes of typical residential dwelling (family occupation, kitchen/living/bedroom units, landlord-tenant relationship with maintenance obligations) and contrasted them with hostel operations (per bed charges, subdivision of a house into multiple paying accommodations, bundled ancillary services like food/housekeeping, licensing/registration requirements specific to hostels, and regulatory treatment of hostels as public/commercial buildings). The Authority held that hostels provide sociable/temporary accommodation, are run as commercial supply of accommodation & services, and therefore lose character of 'residential dwelling for use as residence'. Zoning permissibility or municipal classification does not determine tax characterization. Exemption notifications must be strictly construed and benefit of ambiguity goes to revenue; purpose of exemption is to avoid taxing ordinary residential lettings to families/individuals, not commercial hostel services. Issue 1 - Ratio vs. Obiter Ratio: The finding that hostels providing boarding/lodging on per-bed, consolidated charges with ancillary services do not amount to 'renting of residential dwelling for use as residence' for exemption purposes is the operative ratio. Distinguishing of cited cases and the reliance on strict interpretation of exemption notifications are applied reasons forming part of the ratio. Observations about licensing and zoning are applied facts supporting the ratio. Issue 1 - Conclusion Conclusion: Hostel accommodation services of the applicant are not eligible for exemption under the exemption notification covering 'renting of residential dwelling for use as residence'. (Cross-reference: Issues 2-4 follow from this conclusion.) Issue 2 - Requirement of GST registration (Legal framework) Legal framework: Section 22 (registration threshold) requires registration where aggregate turnover in a financial year exceeds statutory threshold for suppliers of taxable supplies. Issue 2 - Precedent Treatment Precedent: No distinct precedent applied beyond statutory text; Authority applied general GST registration rules. Issue 2 - Interpretation and reasoning Reasoning: Since hostel accommodation is held to be taxable supply (not exempt), the applicant is a supplier of taxable services and must register if aggregate turnover exceeds the prescribed threshold. Issue 2 - Ratio vs. Obiter Ratio: Mandatory registration follows from classification of the activity as taxable supply; this is a direct legal consequence and part of the operative decision. Issue 2 - Conclusion Conclusion: Applicant must obtain GST registration in the State if aggregate turnover in a financial year exceeds the threshold prescribed by law. Issue 3 - Tariff heading and applicable rate (Legal framework) Legal framework: Notification specifying rates for heading 9963 (Accommodation, food and beverage services), including sub-categories: hotel accommodation, restaurant service, outdoor catering, and 'accommodation, food and beverage services other than' specified sub-items. Issue 3 - Precedent Treatment Precedent: Authority relied on statutory notifications and the conceptual distinction between hotels (temporary stays with extensive facilities) and hostels (longer stay, basic facilities) rather than on particular case law on rate classification. Issue 3 - Interpretation and reasoning Reasoning: Hostels are distinct from hotels; given hostels' basic facilities and longer-term occupation, their services fall under 'accommodation, food and beverage services other than (i)-(v)' of the rate notification (Sl. No. 7(vi) as amended), attracting the rate applicable to that residual item. The Authority observed that hostel services therefore attract the rate assigned to that category rather than the hotel-specific rates. Issue 3 - Ratio vs. Obiter Ratio: Classification of hostel accommodation under Heading 9963 as 'other accommodation services' taxable at the specified rate is part of the dispositive holding and thus ratio. Issue 3 - Conclusion Conclusion: Supply of hostel accommodation falls under Tariff heading 9963 and is taxable at the rate prescribed for 'accommodation, food and beverage services other than (i)-(v)' - i.e., the rate specified in the notification for that residual category (9% CGST + 9% SGST as applied by the Authority in this ruling). Issue 4 - Composite supply treatment of in-house food (Legal framework) Legal framework: Definition of 'composite supply' in the GST Act: two or more taxable supplies naturally bundled and supplied in conjunction, with one principal supply; Section 8 prescribes that tax on a composite supply is the rate of the principal supply. Issue 4 - Precedent Treatment Precedent: Authority applied statutory definition and principles of composite supply rather than external case law. Issue 4 - Interpretation and reasoning Reasoning: Applicant provides accommodation as the principal activity and supplies food and other services bundled at a consolidated price; these services are naturally bundled and ancillary to the principal accommodation service. Therefore, the overall supply is a composite supply with accommodation as principal supply. The principal supply rate governs the tax on the composite supply. Given classification of accommodation as taxable under Heading 9963 and the Authority's rate determination, the composite supply attracts the tax rate of the principal (accommodation) supply. Issue 4 - Ratio vs. Obiter Ratio: The conclusion that in-house food supplied with accommodation forms part of a composite supply and attracts the rate of the principal supply is an operative ratio of the ruling. Issue 4 - Conclusion Conclusion: In-house food supplied to inmates as part of consolidated hostel services is part of a composite supply; the tax rate applicable is that of the principal supply (hostel accommodation) as determined in Issue 3 (i.e., the accommodation rate), and not independently exempt. Issue 5 - Admissibility of one question (Legal framework) Legal framework: Scope of questions admissible under Section 97(2) of the GST Act. Issue 5 - Interpretation and reasoning Reasoning: One of the applicant's questions did not fall within the matters on which an advance ruling can be given under the statute; accordingly the Authority declined to rule on that question. Issue 5 - Ratio vs. Obiter Ratio: Non-admissibility of the question is a procedural determination and forms the operative ruling for that question. Issue 5 - Conclusion Conclusion: No ruling issued on the question outside the scope of Section 97(2).