2023 (9) TMI 1630 - AAR - GST

Exemption from GST - hostel accommodation provided by the applicant - Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and the identical notification under the TNGST Act, 2017, and Entry 13 of Exemption Notification No. 09/2017-IT (Rate) dated 28.06.2017 - requirement of registration if their aggregate turnover exceeds twenty lakh rupees in a financial year - applicable tariff heading and rate of tax for the supply of hostel accommodation services - incidental 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 - Generally, renting of residential dwelling involves letting out any building or part of the building by a lessor to a person or family (related persons) against a rent for using rooms which form part of a house as kitchen, bedroom, and living room etc., on the whole as residence. Thus, a common understanding of the term residential dwelling is one where people reside treating it as a home. Moreover, renting of residential dwelling does not include amenities like food, housekeeping, or laundry etc., whereas, a hostel is that of an establishment which provides living accommodation to a specific categories of persons such as students workers. The Applicant has rented out the premises with the intention of providing hotel accommodation which is more akin to sociable accommodation rather than what is typically considered as residential accommodation. A house/ residential dwelling for occupation contain 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 as well, the impugned along with ancillary services. Thus, on this count 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 evident that the premises rented out by the Applicant cannot be construed as residential dwelling. Hence, it is clear that 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 Acts if their aggregate turnover exceeds twenty lakh rupees in a financial year? - HELD THAT - It is clear 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. The applicable tariff heading and rate of tax for the supply of hostel accommodation services - HELD THAT - It is observed 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 incidental supply of in-house food to hostel inmates is exempt as 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 - since 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. Whether the question raised by the applicant falls within the scope of Section 97(2) of the GST Act? - HELD THAT - 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. Conclusions - 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 must register under GST if their turnover exceeds twenty lakh rupees. iii) Hostel accommodation services fall under Tariff heading 9963 and are taxable at 18%. iv) The supply of in-house food is part of a composite supply with hostel accommodation, taxable at 18%.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the hostel accommodation provided by the applicant is eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) dated 28.06.2017 and the identical Notification under the TNGST Act, 2017.
• Whether the applicant is required to register under the GST Enactments if their aggregate turnover exceeds twenty lakh rupees in a financial year.
• The applicable tariff heading and rate of tax for the supply of hostel accommodation services.
• Whether the incidental supply of in-house food to hostel inmates is exempt as a composite supply.
• Other 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: Eligibility for Exemption

• Relevant legal framework and precedents: The relevant legal framework includes Entry 12 of Exemption Notification No. 12/2017-CT (Rate) and the identical TNGST Act notification. The term "residential dwelling" is not defined under the CGST Act, 2017.
• Court's interpretation and reasoning: The court noted that "residential dwelling" is understood in trade parlance as any residential accommodation, excluding temporary stay facilities like hotels or hostels. The applicant's hostel accommodation was deemed more akin to sociable accommodation rather than residential accommodation.
• Key evidence and findings: The applicant's hostel provides boarding and lodging facilities with ancillary services, charging per bed. Licenses and certificates required for hostels indicate they are considered commercial establishments.
• Application of law to facts: The court found that the hostel accommodation provided does not qualify as a "residential dwelling" for use as a residence, thus not eligible for the exemption.
• Treatment of competing arguments: The court dismissed reliance on the Karnataka High Court's decision in Taghar Vasudeva Ambrish, noting a pending appeal in the Supreme Court. The court also emphasized strict interpretation of exemption notifications.
• Conclusions: The services by way of providing hostel accommodation are not eligible for exemption under the mentioned notifications.

Issue 2: Requirement for GST Registration

• Relevant legal framework: Section 22 of the GST Acts mandates registration for suppliers whose aggregate turnover exceeds twenty lakh rupees.
• Court's interpretation and reasoning: The applicant's services are classified as "supply" under Section 7(1)(a) of the CGST Act.
• Conclusions: The applicant is required to register under the GST Acts if their turnover exceeds the specified threshold.

Issue 3: Tariff Heading and Tax Rate

• Relevant legal framework: Notification No. 11/2017, Central Tax (Rate) specifies tax rates for various services.
• Court's interpretation and reasoning: Hostel accommodation services fall under Tariff heading 9963 and are taxable at 9% CGST + 9% SGST.
• Conclusions: The supply of hostel accommodation services is taxable at the specified rate.

Issue 4: Incidental Supply of In-house Food

• Relevant legal framework: Section 2(30) of the GST Act defines "Composite Supply."
• Court's interpretation and reasoning: The supply of food is part of a composite supply with hostel accommodation as the principal supply.
• Conclusions: The composite supply is taxable at 18%, the rate applicable to the principal supply of hostel accommodation.

Issue 5: Other Questions

• Conclusions: No ruling issued as the questions do not fall under the scope of Section 97(2) of the GST Act.

3. SIGNIFICANT HOLDINGS

• Core principles established: Exemption notifications are to be interpreted strictly, and the burden of proving applicability lies on the assessee.
• Final determinations on each issue:
  
  • Hostel accommodation services are not exempt under the relevant notifications.
  • The applicant must register under GST if turnover exceeds the threshold.
  • Hostel accommodation services are taxable at 18% as a composite supply.
  • No ruling on questions outside the scope of Section 97(2).