2023 (9) TMI 1642 - 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 legal judgment addresses the following core issues:

• Whether the hostel accommodation provided by the Applicant qualifies for exemption under Entry 12 of Exemption Notification No. 12/2017-CT (Rate) and similar notifications under the TNGST Act, 2017.
• Whether the Applicant is required to register under the GST Act if their aggregate turnover exceeds twenty lakh rupees.
• The appropriate tariff heading and tax rate applicable to the supply of hostel accommodation services by the Applicant.
• Whether the supply of in-house food to hostel inmates is exempt as part of a composite supply.
• Additional 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: Exemption Eligibility for Hostel Accommodation

• Relevant Legal Framework and Precedents: The exemption under Entry 12 of Notification No. 12/2017-CT (Rate) applies to "services by way of renting of residential dwelling for use as residence." The term "residential dwelling" is not defined under the CGST Act but is interpreted in trade parlance as excluding temporary accommodations like hotels or hostels.
• Court's Interpretation and Reasoning: The court determined that the hostel accommodation provided by the Applicant does not qualify as a "residential dwelling" for use as a residence. Hostels, by nature, offer temporary lodging and are considered commercial establishments.
• Key Evidence and Findings: The Applicant's hostel provides accommodation to students and working women, charges are based on per bed, and additional services like food and housekeeping are included. Licenses and certificates classify the hostel as a commercial entity.
• Application of Law to Facts: The court found that the hostel's operation is akin to a business providing accommodation services, not a residential dwelling for use as a residence.
• Treatment of Competing Arguments: The Applicant's reliance on the Karnataka High Court's decision was noted, but the court emphasized that the decision is under appeal and not binding. The court also rejected the Applicant's reliance on zoning regulations and other legal precedents as not applicable to the GST context.
• Conclusions: The hostel accommodation does not qualify for the exemption under the specified notifications.

Issue 2: Requirement for GST Registration

• Relevant Legal Framework: Section 22 of the CGST Act mandates registration for suppliers whose aggregate turnover exceeds twenty lakh rupees.
• Court's Interpretation and Reasoning: The court held that the Applicant must register under the GST Act if their turnover exceeds the threshold, as the hostel operation is considered a business activity.
• Conclusions: The Applicant is required to register for GST if the turnover criterion is met.

Issue 3: Tariff Heading and Tax Rate for Hostel Services

• Relevant Legal Framework: Notification No. 11/2017, Central Tax (Rate), specifies tax rates for accommodation services under Heading 9963.
• Court's Interpretation and Reasoning: The court classified the hostel services under Heading 9963, taxable at 9% CGST and 9% SGST.
• Conclusions: The applicable tax rate for the hostel services is 18% (9% CGST + 9% SGST).

Issue 4: Taxability of In-House Food Supply

• Relevant Legal Framework: Section 2(30) of the GST Act defines "composite supply" as a supply consisting of two or more goods or services naturally bundled.
• Court's Interpretation and Reasoning: The court determined that the supply of in-house food is part of a composite supply with hostel accommodation as the principal supply, taxable at 18%.
• Conclusions: The composite supply, including food, is taxable at the rate applicable to hostel accommodation services.

Issue 5: Additional Questions

• Conclusions: No ruling was issued for questions not within the scope of Section 97(2) of the GST Act.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment clarifies that hostel accommodations do not qualify as "residential dwellings" for GST exemption purposes. The judgment also emphasizes strict interpretation of exemption notifications.
• Final Determinations on Each Issue:
  
  • The hostel accommodation is not exempt under Entry 12 of the relevant notifications.
  • The Applicant must register for GST if turnover exceeds twenty lakh rupees.
  • The hostel services are taxable at 18% under Heading 9963.
  • The supply of in-house food is part of a composite supply, taxable at 18%.
  • No ruling on questions outside Section 97(2) of the GST Act.
  
  

Verbatim Quotes of Crucial Legal Reasoning:

"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."

"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."