Hostel rentals for students and staff treated as residential dwelling, exempt from GST under Notification 9/2017 Entry 13

HC held that rent received from leasing residential premises used as hostels for students, teachers and staff qualifies as "renting of residential dwelling for use as residence" under Entry 13 of Notification 9/2017, and is therefore exempt from GST. Relying on its earlier Division Bench ruling on the same notification, HC concluded that such rental income is not exigible to GST. Consequently, the impugned order rejecting the exemption and refund was quashed. The matter was remitted to the tax authorities with a direction to reconsider the petitioner's refund application afresh within a stipulated period, in accordance with the exemption.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether rent received for leasing a residential premises to an educational foundation for accommodation of students, teachers and staff is covered by the exemption for "services by way of renting of residential dwelling for use as a residence" under Entry 13 of Notification No. 9/2017, and therefore not exigible to GST.

(2) Whether, in light of the above, the appellate order rejecting the refund claim and the related endorsement are liable to be set aside and the refund application reconsidered.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Applicability of GST exemption for renting of residential dwelling used as residence

Legal framework (as discussed in the judgment)

(a) Entry 13 of Notification No. 9/2017 dated 28.06.2017 exempts "services by way of renting of residential dwelling for use as residence".

(b) The Court relies on and reproduces in detail the decision of the Division Bench in Taghar Vasudeva Ambrish v. Appellate Authority for Advance Ruling, Karnataka, which considered the same Entry 13 and the expression "services by way of renting of residential dwelling for use as residence".

(c) The Division Bench, after examining statutory interpretation principles for exemption notifications and the meaning of "residential dwelling", held that leasing of residential premises used as hostels by students and working professionals for long-term accommodation is covered by Entry 13 and is exempt from GST.

Interpretation and reasoning

(d) The Court notes that the petitioner's premises were leased to an educational foundation for accommodation of students, teachers and staff; the Gram Panchayat had certified the property as a residential dwelling, and the second respondent's initial audit report itself had treated the rent as derived from a residential premises exempt from GST.

(e) The Court explicitly applies the ratio of the Division Bench in Taghar Vasudeva Ambrish, observing that the Division Bench has already concluded that rent received by leasing out residential premises for the purpose of accommodation of students, staff and teachers is not exigible to GST under Entry 13.

(f) The Court does not undertake a fresh interpretative exercise, but treats the Division Bench decision as binding and directly applicable to the facts, which are materially similar, namely renting of a residential dwelling used as residential accommodation for students, staff and teachers.

Conclusions

(g) The rent received by the petitioner from leasing the residential premises to the foundation for accommodation of students, teachers and staff is not exigible to GST, being covered by the exemption in Entry 13 of Notification No. 9/2017.

(h) The contrary view reflected in the revised audit report and subsequent orders rejecting exemption/refund is inconsistent with the binding Division Bench precedent.

Issue (2): Validity of refund rejection and appellate order; direction to reconsider refund

Interpretation and reasoning

(i) The petitioner had paid GST on the rent "under protest" and sought refund on the basis that the services were exempt. The initial audit report supported this position, but a revised audit report and subsequent orders rejected the exemption and the refund, leading to the impugned endorsement and appellate order.

(j) Since, applying Taghar Vasudeva Ambrish, the underlying rental service is not taxable, the appellate order dated 10.01.2024, which rejected the refund claim, is premised on an incorrect view of the law.

(k) The Court holds that this legal error vitiates the impugned appellate order, and that the refund claim must be reconsidered afresh in accordance with the principles laid down by the Division Bench.

Conclusions

(l) The impugned appellate order dated 10.01.2024 rejecting the petitioner's appeal for refund is set aside.

(m) The respondents are directed to reconsider the refund application dated 26.09.2022 and to pass appropriate orders within six weeks from receipt of the Court's order, bearing in mind and applying the principles laid down in Taghar Vasudeva Ambrish.

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