2023 (9) TMI 1636 - AAR - GST

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.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. 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 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.

2. Whether the Applicant is required to register under the GST Act if their aggregate turnover exceeds twenty lakh rupees in a financial year.

3. What is the applicable tariff heading and rate of tax for the supply of hostel accommodation services provided by the Applicant?

4. Whether the supply of in-house food to the inmates of the hostel is exempt as an incidental activity to the exempt activity of hostel accommodation.

5. A fifth question was raised by the Applicant, but no ruling was issued as it did not fall under the scope of Section 97(2) of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Exemption

• Legal Framework and Precedents: The relevant exemption is provided under Entry 12 of Notification No. 12/2017-CT (Rate), which exempts services by way of renting a residential dwelling for use as a residence. The term "residential dwelling" is not defined in the CGST Act but is interpreted in trade parlance as residential accommodation excluding temporary stay facilities like hotels or hostels.
• Court's Interpretation and Reasoning: The court examined whether the hostel accommodation qualifies as a "residential dwelling" for use as a residence. It concluded that hostels provide temporary lodging and do not meet the criteria of a residential dwelling, which is typically a place where people reside as a home.
• Key Evidence and Findings: The Applicant provides accommodation along with ancillary services like food and housekeeping, which are not typical of a residential dwelling. The premises are rented out on a per-bed basis, indicating a commercial activity rather than residential use.
• Application of Law to Facts: The court found that the hostel accommodation is more akin to sociable accommodation than residential dwelling, making it ineligible for the exemption.
• Treatment of Competing Arguments: The Applicant cited several precedents and argued that hostels should be considered residential dwellings. However, the court noted that these cases were not directly applicable and that the exemption notification should be interpreted strictly.
• Conclusions: The court concluded that the hostel accommodation does not qualify for exemption under the cited notifications.

Issue 2: Requirement for GST Registration

• Legal Framework: As per Section 22 of the GST Act, any supplier of services is required to register if their aggregate turnover exceeds twenty lakh rupees in a financial year.
• Court's Interpretation and Reasoning: Since the Applicant's service of providing hostel accommodation is not exempt, it constitutes a taxable supply. Thus, the Applicant is required to register under the GST Act if their turnover exceeds the threshold.
• Conclusion: The Applicant must register for GST if their turnover exceeds twenty lakh rupees.

Issue 3: Applicable Tariff and Tax Rate

• Legal Framework: The relevant entries in Notification No. 11/2017, Central Tax (Rate) provide the tax rates for accommodation services.
• Court's Interpretation and Reasoning: The court determined that the hostel services fall under Tariff heading 9963 and are taxable at 9% CGST + 9% SGST.
• Conclusion: The supply of hostel accommodation is taxable at 18% under the specified tariff heading.

Issue 4: Taxability of In-house Food Supply

• Legal Framework: Section 2(30) of the GST Act defines composite supply, where the tax rate on the principal supply applies to the entire composite supply.
• Court's Interpretation and Reasoning: The court found that the supply of food is part of a composite supply with hostel accommodation being the principal supply. Thus, the tax rate for the composite supply is 18%.
• Conclusion: The supply of in-house food is taxable at the same rate as the principal supply of hostel accommodation, which is 18%.

3. SIGNIFICANT HOLDINGS

• 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 exemption for renting residential dwellings for use as residence does not extend to hostel accommodations, which are considered commercial establishments.
• Final Determinations:
  
  • The hostel accommodation services provided by the Applicant are not eligible for GST exemption.
  • The Applicant must register for GST if their turnover exceeds the threshold.
  • The applicable tax rate for hostel accommodation services is 18%.
  • The supply of in-house food is part of a composite supply and is taxable at 18%.
  • No ruling was issued for the fifth question as it was outside the scope of the Act.