Hostel accommodation services for students and working women not exempt from GST, taxable at 18% rate

The 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 provisions. The authority held that hostels constitute business accommodation services rather than residential dwellings, requiring GST registration if turnover exceeds Rs. 20 lakh annually. Hostel accommodation services fall under tariff heading 9963, taxable at 18% GST (9% CGST + 9% SGST). Food and other services provided in-house constitute a composite supply with accommodation as the principal service, attracting the same 18% tax rate.

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1. ISSUES PRESENTED and CONSIDERED

The judgment addresses the following core legal questions:

• Whether the hostel accommodation provided by the Applicant qualifies 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 Acts if their aggregate turnover exceeds twenty lakh rupees.
• What is the applicable tariff heading and rate of tax for the supply of hostel accommodation servicesRs.
• Whether the incidental supply of in-house food to the inmates of the hostel would be exempt as part of a composite exempt supply.
• Other unspecified questions that do not fall within the scope of Section 97(2) of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption Eligibility for Hostel Accommodation

• Relevant Legal Framework and Precedents: The Applicant sought exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate), which exempts "services by way of renting of residential dwelling for use as residence." The term "residential dwelling" is not defined in the CGST Act.
• Court's Interpretation and Reasoning: The court interpreted "residential dwelling" in line with the erstwhile service tax law, where it is understood as any residential accommodation excluding temporary stay facilities like hotels or hostels. The court emphasized that hostels provide temporary lodging and are commercial establishments.
• Key Evidence and Findings: The Applicant's hostel was deemed a commercial establishment due to the nature of services provided, including ancillary services like food and housekeeping, and the premises were rented out on a per-bed basis.
• Application of Law to Facts: The court concluded that the Applicant's hostel does not qualify as a "residential dwelling" and is not used "for use as residence," thus not eligible for the exemption.
• Treatment of Competing Arguments: The Applicant's reliance on the Karnataka High Court decision in Taghar Vasudeva Ambrish was noted, but the pending appeal in the Supreme Court was highlighted. The court also dismissed the relevance of zoning regulations and other case laws cited by the Applicant.
• Conclusions: The court held that the hostel accommodation services provided by the Applicant are not exempt under the specified notifications.

Issue 2: Requirement for GST Registration

• Relevant Legal Framework: Section 22 of the CGST Act mandates registration for suppliers if their aggregate turnover exceeds twenty lakh rupees.
• Court's Interpretation and Reasoning: The court determined that the Applicant's services constitute a "supply" under Section 7(1)(a) of the CGST Act, thus requiring registration if the turnover threshold is met.
• Conclusions: The Applicant must register under GST if their turnover exceeds the specified limit.

Issue 3: Tariff Heading and Rate of Tax

• Relevant Legal Framework: Notification No. 11/2017, Central Tax (Rate) specifies the tax rates for different services.
• Court's Interpretation and Reasoning: The court classified the hostel services under Heading 9963, taxable at 9% CGST + 9% SGST.
• Conclusions: The supply of hostel accommodation services is taxable at the specified rate.

Issue 4: Composite Supply of In-House Food

• Relevant Legal Framework: Section 2(30) of the GST Act defines "composite supply."
• Court's Interpretation and Reasoning: The court found the supply of food to be part of a composite supply with hostel accommodation as the principal service.
• Conclusions: The composite supply is taxable at the rate applicable to the principal supply, i.e., 18%.

Issue 5: Unspecified Questions

• Court's Interpretation and Reasoning: The court declined to issue a ruling on questions not within the scope of Section 97(2) of the GST Act.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment reinforces the interpretation of "residential dwelling" and emphasizes the commercial nature of hostels, distinguishing them from exempt residential properties.
• Final Determinations on Each Issue:
  
  • Hostel accommodation services are not exempt from GST.
  • The Applicant must register under GST if turnover exceeds twenty lakh rupees.
  • Tax rate for hostel services is 18% (9% CGST + 9% SGST).
  • In-house food supply is part of a composite taxable supply.
  
  

Verbatim Quotes of Crucial Legal Reasoning:

• "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."
• "The place rented out is neither a residential dwelling nor being rented out for use as residence."

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