The judgement has been passed by Hon’ble Madras High Court in case of Thai Mookambikaa Ladies Hostel Vs. Union of India W.P.No.28486 of 2023 Dt. 22.03.2024.
Facts:
The petitioners herein, having obtained licence, are running private ladies hostels by providing residential accommodation and food to the college students and working women on monthly basis with reasonable tariffs. According to the petitioners, they are carrying on ladies hostels with a philanthropic motive and purpose for providing safe and secure environment for the student girls and working women who hail from far away places and remote villages and who are not in a position to secure independent residential accommodation by paying huge rents and advance in the city. The monthly tariff per student or per inmate ranges between Rs.1200/- to 6,500/- per month.
Petitioner’s contention:
The Central Government has issued exemption Notification No.12/2017-Central Tax (Rate) dated 28.06.2017, wherein certain categories of exempt services were notified.
Under the Exemption Notification above mentioned, Entry No. 12 of the Exemption Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 (similar entry, vide Entry No. 13 of Exemption Notification No. 9/2017-Integrated Tax Rate dated 28.06.2017) reads as follows:
| S.No. | Chapter/Section/Heading/ Group/Service Code (Tariff) | Description of Service | Rate (%) | Condition |
| 1. | HEADING: 9963 OR HEADING 9972 | Services by way of renting of residential dwelling for use as residence. Explanation- For the purpose of exemption under this entry shall cover services by way of renting of residential dwelling to a registered person where the registration person is Proprietor of a Proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence and to such renting is on his own account and not that of the proprietorship concern”. | NIL | NIL |
By referring to the above, the petitioners herein would claim that since they are providing the residential accommodation to the girl students and working women, which can be termed as ‘residential dwelling’ used as residence by the inmates of the hostels and thereby, the charges/rent/tariff collected by them from the inmates on such accommodation, qualifies for GST exemption and therefore, they are entitled to the exemption from levy of GST tax.
The learned counsel appearing for the petitioner would submit that in the present case, the hostel services provided by the petitioners would squarely falls under the Entry No.12 of Exemption Notification No.12 of 2017. In the matter of Taghar Vasudeva Ambrish vs. Appellate Authority for Advance Ruling reported in MANU/KA/0327/2022, the Hon’ble Division Bench of Karnataka High Court has categorically held that the services provided by leasing out the residential premises as hostel to the students and working professionals are exempted in Entry No.13 of Exemption Notification No.9 of 2017. In the present case, the same is reflected in Entry No.12 of Exemption Notification No.12 of 2017. Therefore, by referring the above judgment, she would submit that renting the premises includes hostels and thus, the exemption provided under Entry No.12 of Exemption Notification No.12 of 2017 would apply in the present case also.
Petitioner had went before Appellate Authority of Advance ruling (AAAR) also for this case wherein the AAAR had rejected petitioner’s claim and mentioned that:
“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 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.
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, as amended vide Notification No. 20/2019 – Central Tax (Rate) dated 30.09.2019.
The activity of supply of inhouse food to the inmates of the hostel amounts to providing services in a composite manner and 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.”
Revenue’s contention:
The services provided by the petitioners do not fall under’ services by way of renting of resendital dwelling for use as residence’ since they are letting out a single room to various inmates for various time period for a pecuniary benefit as part of their business and more over, they are not entering any rental agreements with the inmates for transfer of rights of the specified place for a specific period and hence, it does not cover the definition of ‘residence’ which is controlled by the Tamil Nadu Rent Regulation Act. The rents received from the renting out or subletting of property is subject to Tax Deduction at Sources, but the petitioners are not deducting any TDS under Section 194(I) of the Income Tax Act. Hence, the claim of the petitioners that renting of residential dwelling for the use as residence would fall to the ground.
He would also submit that since the definition of ‘hotel accommodation’ was broadly expanded in the notification No. 20/2019 Central Tax (Rate) dated 30.09.2019, wherein all the accommodation services including hostel accommodations services are brought in to the tax net (@ 12% and hence rate of tax for the hostel accommodation services is taxable @ 12% with effect from 30.09.2019 onwards.
Observation by the court:
The Authorities have to look into the aspect as to whether the particular place is a dwelling unit or not. When such being the case, since the hostellers are staying in the room for months together, it cannot be construed as non-residential unit and certainly it is a residential dwelling as provided in the Entry No.12 of Exemption Notification No.12 of 2017. Thus, this Court has no hesitation to hold that the ‘hostel services’ provided by the petitioners would squarely fall within purview of Entry No.12 of Exemption Notification No.12 of 2017. Further, in the present case, no commercial activities can be attributed against the owners of the hostels since they have been providing only ‘residential accommodation’ to the girl students, working women, etc., who are using the ‘hostel premises’ as their residence and not for business purpose by using the common kitchen and sharing the
food among themselves.
In view of the above finding and by following the law laid down in the above judgement by the Hon’ble Karnataka High Court, this Court is of the considered view that the ‘hostel services’ provided by the petitioners to the girl students and working women will squarely amount to the ‘residential dwelling’ and accordingly, the same will be squarely covered under the Entry No.12 of Exemption Notification No.12 of 2017.
In the present case, the imposition of GST on the Hostel accommodation should be viewed from the perspective of the recipient of service and not from the perspective of service provider. However, the 2nd respondent has dealt with the entire issue as if GST is going to be imposed on the revenue of the service provider and he is going to pay the same from and out of his pocket. On the other hand, the imposition of GST is only on the recipient of service and the GST is going to be collected only from the recipient of the service and not from the service provider. As far as service provider is concerned, he is collecting the GST from the recipient of the service and making deposit with the Central Government.
While adverting to the imposition of GST on hostel accommodation, it has to be looked into as to whether the inmates of the hostel rooms, are using the premises as their residential dwelling or commercial purpose since renting of residential unit attracts GST only when it is rented for commercial purpose. So, in order to claim exemption of GST, the nature of the end-use should be ‘residential’ and it cannot be decided by the nature of the property or the nature of the business of the service provider, but by the purpose for which it is used i.e. ‘resident dwelling’ which is exempted from GST. Therefore, this Court is of the considered view that the issue of levy of GST on residential accommodation should be viewed from the perspective of recipient of service and not from the perspective of service provider, who offers the premises on rental basis.
In the light of the above discussion, it is clear that the renting out the hostel rooms to the girl students and working women by the petitioners is exclusively for residential purpose, this Court is of the considered view that the condition prescribed in the Notification in order to claim exemption, viz., ‘residential dwelling for use as residence’ has been fulfilled by the petitioners and thus the said services are covered under Entry Nos.12 and 14 of the Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017, the petitioners are entitled to be exempted from levy of GST.
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