2023 (9) TMI 1647 - AAR - GST

Hostel accommodation for students and working women taxable at 18% GST, not exempt as residential dwelling

IN RE : Tvl. Sri Krishana 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. ISSUES: Whether services by way of providing hostel accommodation qualify for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and identical notifications under TNGST Act and Entry 13 of Exemption Notification No. 09/2017-IT (Rate) dated 28.06.2017. Whether the applicant is required to obtain GST registration given the nature of services provided and turnover thresholds. Classification of the supply of hostel accommodation services under the GST tariff headings and applicable rate of tax. Whether the incidental supply of in-house food to hostel inmates forms part of a composite supply with hostel accommodation and the applicable tax rate. Admissibility and scope of the fifth question raised by the applicant under Section 97(2) of the CGST/TNGST Act. RULINGS / HOLDINGS: Hostel accommodation services provided do not qualify as 'services by way of renting of residential dwelling for use as residence' and hence are not eligible for exemption under the relevant exemption notifications. The applicant is required to obtain GST registration if their aggregate turnover in a financial year exceeds twenty lakh rupees, as the supply constitutes a taxable supply under Section 7(1)(a) of the CGST Act, 2017. The supply of hostel accommodation services falls under Tariff heading 9963 (Accommodation, food and beverage services) and is taxable at 9% CGST plus 9% SGST under Sl. No. 7(vi) of Notification No. 11/2017, as amended. The supply of in-house food to inmates is a composite supply with hostel accommodation as the principal supply; thus, the entire composite supply is taxable at the rate applicable to the principal supply, i.e., 18% GST. No ruling is issued on the fifth question as it does not fall within the scope of Section 97(2) of the CGST/TNGST Act. RATIONALE: The legal framework applied includes the Central Goods and Services Tax Act, 2017, Tamil Nadu Goods and Services Tax Act, 2017, relevant exemption notifications (No. 12/2017-CT (Rate), No. 09/2017-IT (Rate), and No. 11/2017 Central Tax (Rate)), and applicable GST rules. The term 'residential dwelling' is not defined under GST law but is interpreted based on the erstwhile Service Tax Education Guide and common trade parlance to exclude hotels, hostels, inns, guest houses, and similar commercial accommodations meant for temporary stay. Hostel accommodation involves letting out rooms on a per bed basis with ancillary services such as food, housekeeping, and security, which distinguishes it from renting a residential dwelling to a family or individual for use as residence. Licensing and regulatory requirements applicable to hostels under various Tamil Nadu enactments indicate that hostels are treated as commercial or public buildings, not residential dwellings. The exemption notifications are to be interpreted strictly, with the burden on the applicant to prove eligibility; ambiguity in exemption provisions must be resolved in favor of revenue as per Supreme Court precedent. The composite supply concept under Section 2(30) and Section 8 of the CGST Act applies to bundled services where one service is principal; here, hostel accommodation is principal, and incidental food supply is ancillary, attracting the principal supply's tax rate. The decision distinguishes the present facts from contrary Karnataka High Court rulings, noting pending Supreme Court review, and rejects reliance on unrelated judicial precedents not addressing GST law or the specific exemption context.