Hostel accommodation services for students and working women don't qualify for GST exemption under Entry 12 Notification 12/2017

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 business accommodation services, not residential dwellings, requiring GST registration if turnover exceeds Rs. 20 lakh annually. Hostel services are taxable at 18% GST under tariff heading 9963 as composite supply, with accommodation being the principal service bundled with ancillary services like food.

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ISSUES:

• Whether services by way of providing hostel accommodation qualify as "services by way of renting of residential dwelling for use as residence" and are eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and corresponding notifications under TNGST Act and Integrated Tax.
• Whether the applicant providing hostel accommodation is required to obtain GST registration under Section 22 of the CGST Act, 2017.
• Classification of the supply of hostel accommodation services under the GST tariff and applicable rate of tax.
• Whether the incidental supply of in-house food to hostel inmates forms a composite supply with the accommodation services and the applicable tax rate on such composite supply.
• Admissibility of the fifth question raised by the applicant under Section 97(2) of the CGST Act, 2017.

RULINGS / HOLDINGS:

• On Issue 1: The services by way of providing hostel accommodation do not qualify as "services by way of renting of residential dwelling for use as residence" and hence are not eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and corresponding notifications under the TNGST Act and Integrated Tax.
• On Issue 2: The applicant is required to get themselves registered under the GST Acts if their aggregate turnover in a financial year exceeds twenty lakh rupees.
• On Issue 3: The supply of hostel accommodation services falls under Tariff heading 9963 (Accommodation, food and beverage services) and is taxable at 9% CGST + 9% SGST under Sl.No. 7(vi) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 as amended.
• On Issue 4: The supply of in-house food to inmates is a composite supply with hostel accommodation as the principal supply, and the composite supply is taxable at the rate applicable to the principal supply, i.e., 18%.
• On Issue 5: No ruling is issued as the question does not fall within the scope of Section 97(2) of the CGST Act, 2017.

RATIONALE:

• The legal framework applied includes Sections 7, 22, 97, 100, 103, and 104 of the CGST Act, 2017, relevant exemption notifications (notably Notification No. 12/2017-Central Tax (Rate) and Notification No. 11/2017-Central Tax (Rate) as amended), and definitions under GST law including "composite supply" under Section 2(30) of the CGST Act.
• The term "residential dwelling" is not defined under the CGST Act or exemption notifications but was interpreted under erstwhile service tax law and in normal trade parlance as residential accommodation excluding hotels, motels, inns, guest houses, and similar places meant for temporary stay.
• The court emphasized that exemption notifications are to be interpreted strictly and the burden lies on the applicant to prove applicability; ambiguity is resolved in favour of revenue.
• The applicant's hostel accommodation was found to be commercial in nature and akin to hotel accommodation rather than residential dwelling, supported by regulatory licensing requirements applicable to hostels but not to residential dwellings.
• The absence of a landlord-tenant relationship typical of residential renting and the provision of ancillary services such as food, housekeeping, and security further distinguishes the hostel accommodation from residential dwelling rentals.
• Precedents and case law cited by the applicant were found inapplicable as they dealt with different facts or legal contexts, and some relevant decisions are pending before the Supreme Court.
• The classification of hostel accommodation under tariff heading 9963 and the applicable GST rate of 9% CGST + 9% SGST follows from the amended Notification No. 11/2017 and clarifies that hostel services are distinct from hotel accommodation which attracts different rates.
• The supply of food and other ancillary services bundled with accommodation constitutes a composite supply with accommodation as principal supply, attracting the tax rate applicable to the principal supply as per Section 8 of the CGST Act.
• The ruling aligns with the principle that the purpose and objective of exemption notifications is to avoid taxing residential properties rented to families or individuals and does not extend to commercial or public buildings used for accommodation services.

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