2023 (9) TMI 1637 - AAR - GST

Hostel accommodation services for students and working women taxable at 18% GST, not exempt under Entry 12 Notification 12/2017

IN RE : Tvl. Bhagavati 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. 1. 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 exempt under the applicable exemption notification. 2. Whether the applicant is required to obtain registration under the GST Acts, assuming the hostel accommodation is taxable. 3. Classification and applicable rate: the tariff heading and GST rate applicable to supply of hostel accommodation services and ancillary services. 4. Whether supply of in-house food to hostel inmates is covered by an exempt principal supply or forms part of a composite supply, and the tax consequences thereof. 5. Admissibility: whether the questions submitted fall within the scope of advance ruling provisions (Section 97(2)). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether hostel accommodation qualifies as 'renting of residential dwelling for use as residence' (Legal framework) Legal framework: Exemption entry covers 'services by way of renting of residential dwelling for use as residence' under the notification; term 'residential dwelling' is not defined in the CGST Act or notification; reference made to erstwhile guidance under service tax and to general principles of exemption interpretation. Precedent treatment: Applicant relied on decisions and authorities treating 'residence' broadly; a Karnataka High Court decision was cited holding hostels may qualify as residential dwelling, but that decision is the subject of a pending petition before the Supreme Court. The Authority considered Supreme Court guidance on strict interpretation of exemptions. Interpretation and reasoning: The Authority distinguished ordinary 'residential dwelling' (letting to a family/person to use as home with amenities like kitchen, living area and maintenance obligations) from hostels (subdivided rooms, per-bed charges, bundle of services such as food, housekeeping, security, licences required for public/ commercial buildings). Hostels were characterised as commercial/sociable accommodation meant for temporary or extended temporary lodging rather than a family dwelling; regulatory licences and mandatory registration for hostels were treated as indicia of non-residential/commercial character. The Authority applied the principle that exemption notifications must be construed strictly and ambiguity resolved against the claimant. Ratio vs. Obiter: Ratio - hostels providing bundled accommodation and services on a per-bed/commercial basis do not qualify as 'residential dwelling for use as residence' for the exemption. Obiter - discussion of zoning rules and various case citations assessed as fact-dependent and inapplicable to notification interpretation. Conclusion: Services by way of providing hostel accommodation do not qualify for exemption under the said entry; exemption is restricted to renting of residential properties used as a home/residence. Issue 2 - Requirement to obtain GST registration (Legal framework) Legal framework: Section 7(1)(a) read with supply definition and Section 22 registration threshold provisions: every supplier of service making taxable supply must register if aggregate turnover exceeds statutory threshold. Precedent treatment: No conflicting authority accepted by the Authority; central and state authorities treated the activity as supply in furtherance of business. Interpretation and reasoning: Having held hostel accommodation to be taxable supply and noting the applicant supplies accommodation/ancillary services for consideration in course of business, the transaction constitutes 'supply.' Therefore registration obligation arises if aggregate turnover exceeds the statutory threshold. Ratio vs. Obiter: Ratio - applicant must obtain GST registration if aggregate turnover exceeds threshold. Conclusion: Applicant is required to register under GST in the State if aggregate turnover in a financial year exceeds the prescribed limit (Rs. 20 lakh as per the Act applied by the Authority). Issue 3 - Tariff heading and rate applicable to hostel accommodation (Legal framework) Legal framework: Notification structuring Heading 9963 (Accommodation, food and beverage services) with sub-entries including hotel accommodation and 'other accommodation' attracting specified rates; later notifications amended entries and rates. Precedent treatment: Distinction drawn between hotel accommodation (temporary stay with higher facilities) and hostel accommodation (longer stay, basic facilities). Authorities and notifications that expanded hotel definition were noted but Authority analysed available sub-entries to place hostel services. Interpretation and reasoning: Hostels are distinct from hotels; therefore hospitalisation of hotel rates is inappropriate. The Authority placed hostel accommodation under Heading 9963 and Sl. No.7(vi) (accommodation, food and beverage services other than specified sub-entries) attracting 9% CGST and 9% SGST (i.e., total 18%), applying the precept that accommodation services not falling within specified hotel sub-categories are taxable under the residual heading. Ratio vs. Obiter: Ratio - supply of hostel accommodation falls under Heading 9963 and is taxable at 9% CGST + 9% SGST under the residual accommodation entry. Conclusion: Hostel accommodation services are classifiable under Heading 9963 and taxable at 9% CGST + 9% SGST (total 18%) under the applicable notification entry. Issue 4 - Tax treatment of in-house food: composite supply and applicable tax rate (Legal framework) Legal framework: Definition of composite supply (Section 2(30)) and Section 8 treatment (tax rate of principal supply governs composite supplies); principal supply is the supply that predominates in a natural bundle of goods/services supplied together for a single price. Precedent treatment: Authority relied on statutory composite supply rules rather than external precedents. Interpretation and reasoning: The applicant supplies accommodation together with ancillary services (food, housekeeping, utilities) for a consolidated charge without separate pricing. The principal supply is accommodation; therefore composite supply rule applies and the tax rate of the principal supply governs the entire composite supply. Authority noted the principal supply (hostel accommodation) was treated as taxable at aggregate 18% (9%+9%) under heading 9963 for the accommodation service, but the Authority elsewhere observed principal supply classification could result in a composite supply rate of 18% (since composite elements include taxable services attracting different rates). The Authority concluded that because the accommodation is the principal supply and the composite is charged as one, tax on the composite supply will follow the tax rate of the principal supply. Ratio vs. Obiter: Ratio - food supplied in-house as part of bundled/composite services is taxable at the rate applicable to the principal supply (hostel accommodation); composite supply rule applies. Conclusion: In-house food supplied to inmates as part of consolidated hostel service forms a composite supply; tax rate of principal supply applies to the composite supply (the Authority applied the principal supply rate accordingly). Issue 5 - Admissibility of questions for advance ruling (Legal framework) Legal framework: Section 97(2) sets the scope of matters eligible for advance ruling; Authority reviewed Questions 1-5 against statutory scope. Interpretation and reasoning: Authority found Questions 1-4 fall within Section 97(2)(a),(b) & (f) and are admissible; Question 5 did not fall within Section 97(2) scope and no ruling could be issued on that question. Ratio vs. Obiter: Ratio - only questions within the enumerated categories of Section 97(2) are admissible for advance ruling; non-qualifying questions are not decided. Conclusion: Questions 1-4 admissible and decided; Question 5 inadmissible for advance ruling and left unanswered.