2023 (9) TMI 1644 - 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 judgment addresses the following core legal questions:

• Whether the hostel accommodation provided by the Applicant is eligible 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 GST if their aggregate turnover exceeds twenty lakh rupees.
• The applicable tariff heading and rate of tax for the supply of hostel accommodation services.
• Whether the supply of in-house food to hostel inmates is exempt as part of a composite supply.
• Additional questions not falling under the scope of Section 97(2) of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Exemption under Entry 12 of Notification No. 12/2017-CT (Rate)

• Relevant Legal Framework and Precedents: Entry 12 of Notification No. 12/2017-CT (Rate) exempts services by way of renting of residential dwelling for use as residence. The term "residential dwelling" is not defined in the CGST Act, but past interpretations under service tax law describe it as any residential accommodation not meant for temporary stay.
• Court's Interpretation and Reasoning: The court observed that the Applicant's hostel accommodation does not qualify as a "residential dwelling" because it provides temporary lodging with additional services like food and housekeeping, which are not typical of residential dwellings.
• Key Evidence and Findings: The Applicant's hostel was found to be a commercial establishment, supported by various licenses and certificates required for running hostels, which are not applicable to typical residential buildings.
• Application of Law to Facts: The court determined that the hostel services do not meet the criteria for exemption as they are not used as a residence but as temporary accommodation.
• Treatment of Competing Arguments: The Applicant's reliance on the Karnataka High Court decision was noted, but the court highlighted that the decision is under appeal in the Supreme Court, and the facts of the case differ.
• Conclusions: The hostel accommodation services are not eligible for exemption under the specified entry.

Issue 2: Requirement for GST Registration

• Relevant Legal Framework: Section 22 of the CGST Act mandates registration for suppliers with an aggregate turnover exceeding twenty lakh rupees.
• Court's Interpretation and Reasoning: The court ruled that the Applicant must register for GST if their turnover exceeds the threshold, as the hostel services constitute a taxable supply.
• Conclusions: The Applicant is required to register under GST if the turnover criteria are met.

Issue 3: Applicable Tariff Heading and Tax Rate

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

Issue 4: Composite Supply and Tax on In-House Food

• Relevant Legal Framework: Section 2(30) of the GST Act defines composite supply, and Section 8 determines tax rates based on the principal supply.
• Court's Interpretation and Reasoning: The court found that the supply of food is part of a composite supply with hostel accommodation as the principal supply, taxable at the same rate of 18%.
• Conclusions: The composite supply, including in-house food, is taxable at 18%.

Issue 5: Additional Questions

• Conclusions: No ruling was issued as the question did not fall within the scope of Section 97(2) of the GST Act.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment reinforces the principle that exemptions must be interpreted strictly, and the burden of proof lies with the claimant to demonstrate eligibility.
• Final Determinations on Each Issue:
  • The hostel accommodation services are not exempt under Entry 12 of Notification No. 12/2017-CT (Rate).
  • The Applicant must register for GST if turnover exceeds twenty lakh rupees.
  • Hostel services are taxable at 18% under Heading 9963.
  • The composite supply, including food, is taxable at 18%.
  • No ruling on additional questions outside the scope of Section 97(2).
• 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 place rented out is neither a residential dwelling nor being rented out for use as residence."