Hostel accommodation services for students and working women don't qualify for GST exemption under residential dwelling provisions

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 notifications. The accommodation constitutes taxable supply of services requiring GST registration if turnover exceeds twenty lakh rupees annually. Hostel services are taxable at 18% GST under tariff heading 9963 as composite supply, with accommodation being the principal service. The authority distinguished hostels from residential dwellings, noting hostels provide temporary accommodation with bundled services on per-bed basis rather than family residential use.

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1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses the following core issues:

• Whether the hostel accommodation provided by the Applicant qualifies for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) and similar notifications under the TNGST Act, 2017.
• Whether the Applicant is required to register under the GST Act if their aggregate turnover exceeds twenty lakh rupees.
• The appropriate tariff heading and tax rate applicable to the supply of hostel accommodation services by the Applicant.
• Whether the supply of in-house food to hostel inmates is exempt as part of a composite supply.
• Additional questions raised by the Applicant that do not fall under 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 exemption under Entry 12 of Notification No. 12/2017-CT (Rate) applies to "services by way of renting of residential dwelling for use as residence." The term "residential dwelling" is not defined under the CGST Act but is interpreted in trade parlance as excluding temporary accommodations like hotels or hostels.
• Court's Interpretation and Reasoning: The court determined that the hostel accommodation provided by the Applicant does not qualify as a "residential dwelling" for use as a residence. Hostels, by nature, offer temporary lodging and are considered commercial establishments.
• Key Evidence and Findings: The Applicant's hostel provides accommodation to students and working women, charges are based on per bed, and additional services like food and housekeeping are included. Licenses and certificates classify the hostel as a commercial entity.
• Application of Law to Facts: The court found that the hostel's operation is akin to a business providing accommodation services, not a residential dwelling for use as a residence.
• Treatment of Competing Arguments: The Applicant's reliance on the Karnataka High Court's decision was noted, but the court emphasized that the decision is under appeal and not binding. The court also rejected the Applicant's reliance on zoning regulations and other legal precedents as not applicable to the GST context.
• Conclusions: The hostel accommodation does not qualify for the exemption under the specified notifications.

Issue 2: Requirement for GST Registration

• Relevant Legal Framework: Section 22 of the CGST Act mandates registration for suppliers whose aggregate turnover exceeds twenty lakh rupees.
• Court's Interpretation and Reasoning: The court held that the Applicant must register under the GST Act if their turnover exceeds the threshold, as the hostel operation is considered a business activity.
• Conclusions: The Applicant is required to register for GST if the turnover criterion is met.

Issue 3: Tariff Heading and Tax Rate for Hostel Services

• Relevant Legal Framework: Notification No. 11/2017, Central Tax (Rate), specifies tax rates for accommodation services under Heading 9963.
• Court's Interpretation and Reasoning: The court classified the hostel services under Heading 9963, taxable at 9% CGST and 9% SGST.
• Conclusions: The applicable tax rate for the hostel services is 18% (9% CGST + 9% SGST).

Issue 4: Taxability of In-House Food Supply

• Relevant Legal Framework: Section 2(30) of the GST Act defines "composite supply" as a supply consisting of two or more goods or services naturally bundled.
• Court's Interpretation and Reasoning: The court determined that the supply of in-house food is part of a composite supply with hostel accommodation as the principal supply, taxable at 18%.
• Conclusions: The composite supply, including food, is taxable at the rate applicable to hostel accommodation services.

Issue 5: Additional Questions

• Conclusions: No ruling was issued for questions not within the scope of Section 97(2) of the GST Act.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment clarifies that hostel accommodations do not qualify as "residential dwellings" for GST exemption purposes. The judgment also emphasizes strict interpretation of exemption notifications.
• Final Determinations on Each Issue:
  
  • The hostel accommodation is not exempt under Entry 12 of the relevant notifications.
  • The Applicant must register for GST if turnover exceeds twenty lakh rupees.
  • The hostel services are taxable at 18% under Heading 9963.
  • The supply of in-house food is part of a composite supply, taxable at 18%.
  • No ruling on questions outside Section 97(2) of the GST Act.
  
  

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 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."

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