Hostel accommodation services don't qualify for GST exemption under Entry 12, attract 18% tax rate

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 of Notification 12/2017. The authority held that hostels constitute commercial accommodation services with ancillary facilities, not residential dwellings. Consequently, the applicant must register under GST if turnover exceeds Rs. 20 lakh annually. Hostel accommodation services attract 18% GST (9% CGST + 9% SGST) under tariff heading 9963. Food and other services provided constitute composite supply with accommodation as principal supply, taxable at 18% overall rate.

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1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following core legal questions:

• Whether the hostel accommodation services provided by the Applicant qualify for GST exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017.
• Whether the Applicant is required to register under the GST Act if their aggregate turnover exceeds twenty lakh rupees.
• What is the applicable tariff heading and rate of tax for the hostel accommodation services provided by the ApplicantRs.
• Whether the incidental supply of in-house food to hostel inmates is exempt as a composite supply.
• Additional questions regarding the scope of Section 97(2) of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: GST Exemption for Hostel Accommodation

• Relevant Legal Framework and Precedents: The primary legal framework involves 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 under the CGST Act, 2017.
• Court's Interpretation and Reasoning: The court interpreted "residential dwelling" in normal trade parlance as any residential accommodation not meant for temporary stay, such as hotels or hostels. The court emphasized that hostels provide temporary lodging and do not qualify as residential dwellings.
• Key Evidence and Findings: The Applicant provides hostel accommodation with ancillary services, charging on a per-bed basis. The premises are rented and further sub-let to students and working women.
• Application of Law to Facts: The court found that the hostel accommodation does not meet the criteria of "residential dwelling for use as residence" due to its commercial nature and the temporary nature of the stay.
• Treatment of Competing Arguments: The Applicant's reliance on the Karnataka High Court decision in Taghar Vasudeva Ambrish was noted, but the court highlighted that a Special Leave Petition against this decision is pending before the Supreme Court.
• Conclusions: The hostel accommodation services do not qualify for exemption under the relevant GST notification.

Issue 2: GST Registration Requirement

• Relevant Legal Framework: Section 22 of the GST Acts mandates registration for suppliers with an aggregate turnover exceeding twenty lakh rupees.
• Court's Interpretation and Reasoning: The court held that the Applicant is required to register under GST if their turnover exceeds the specified threshold, as the services constitute a taxable supply.
• Conclusions: The Applicant must register for GST if their financial turnover exceeds twenty lakh rupees.

Issue 3: Tariff Heading and Tax Rate for Hostel Services

• Relevant Legal Framework: Notification No. 11/2017, Central Tax (Rate), as amended, specifies the tax rates for different services under Heading 9963.
• Court's Interpretation and Reasoning: The court determined that hostel accommodation services fall under Tariff heading 9963 and are taxable at 9% CGST + 9% SGST.
• Conclusions: Hostel accommodation services are taxable at the specified rates under the given tariff heading.

Issue 4: Composite Supply of In-house Food

• Relevant Legal Framework: Section 2(30) of the GST Act defines composite supply, and Section 8 determines the tax rate based on the principal supply.
• Court's Interpretation and Reasoning: The court found 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 in-house food, is taxable at the rate applicable to the principal supply, i.e., 18%.

Issue 5: Additional Questions

• Court's Interpretation and Reasoning: The court declined to issue a ruling on the fifth question as it did not fall under 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 judgment reinforces the principle that hostel accommodations do not qualify as residential dwellings for GST exemption purposes due to their commercial nature and temporary lodging characteristics.
• Final Determinations on Each Issue: The court ruled that hostel accommodation services are not exempt under the relevant GST notifications, the Applicant must register for GST if turnover exceeds the threshold, and the services are taxable at specified rates. The incidental supply of food is part of a composite supply taxable at 18%.

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