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GST is leviable on Hostel Rooms provided to Students and working people: Advance Ruling

Recently Karnataka Authority for Advance Ruling has held that GST is leviable on hostel Rooms provided to Students and working people in the form of Pay-in-Guest (PG) facility as it is not exempt under category of Renting of Residential Dwelling for   use   as  Residence, but taxable under category of Accommodation Service. (Copy of Order is provided at the end of the article).


In this article, we will discuss following areas:


Brief Facts of the Case


Applicant provides residential dwelling to the students and working women on monthly rental basis; the services involve basic residential facilities required for staying and study which include well-maintained furnished residence, light, water etc.,


Applicant provides the following three types of renting services on monthly rental basis according to the convenience of the students/women:


a)  Single Occupancy : A unit in residential dwelling which contains single bed in a room for single person, having facilities of electricity, food, furnishing, fan, lighting etc.,


Double Occupancy : A unit in residential dwelling that contains two beds in room for two persons, having facilities of electricity, food, furnishing, fan, lighting etc.,  Dual occupancy is a great way to save money, normally this option is chosen by one or more friends/relatives who are familiar with each in study. If empty units available then from dual occupancy to occupancy can be opted by residents.


Triple Occupancy : A unit in residential dwelling that contains three beds in a room for three persons, having facilities of electricity, food, furnishing, fan, lightings etc., Student who generally wish to study in a group will choose this option.


Applicant, while renting the dwelling, collects documents and details such as Name of the resident, College ID, Aadhar Card, Contact Number, address, Parent's details etc.,


Applicant, being the owner of the property, pays property tax to the BBMP, under  the  category  of  residential  building,  which  is  suitable  for  residential purposes,  the layout of the property,  its structure,  design is for usage  as a residential  unit  and  also  the  plan  of the  property  sanctioned  by  the  local authorities is for a residential building.


The following facilities are made available, as per para 8 of the 'Residential Service Agreement'.


Cot with mattress, table with chair and cupboard with locking facility, one light and one fan per room and attached bathroom , breakfast, lunch, dinner and evening tea/snacks, laundry, power backup, house keeping, security and RO drinking water.


Nature of Dispute


Taxpayer argued that it falls in the category of Renting of Residential Dwelling for use as Residence and accordingly exempt under N.No. 12/2017 as amended.


Notification No. 12/2017 prescribes the Exemption as :


Services by way of renting of residential dwelling   for   use   as   residence [except where the residential dwelling is rented to a registered person].


[Explanation.      - For        the      purpose       of exemption  under  this  entry,  this  entry shall cover services by way of renting of residential dwelling to a registered person where, -


(i) the registered person is proprietor of a proprietorship concern and rents the residential   dwelling in his personal capacity for use as his own residence;


and Heading 9963 or Heading 9972 (ii) such renting is on his own account and not that of the proprietorship concern.]


However, Authority decides that it does not falls under Renting of Residential Dwelling for Residential use but a Unit Accommodation for Residential purpose like Guesthouses etc.


Key Arguments of the Authority


We observe that the term 'residential dwelling' is neither defined in the Notification nor in the CGST Act 2017/rules made there under.   However the Education guide on Taxation of services, issued by the CBIC under erstwhile Service  Tax  Law,  at  para 4.13.1  while  answering  the  question 


"What  is  a `residential dwelling'?"


The term 'residential dwelling' in terms of the normal trade parlance, as per which it is a residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, house boat, or like places meant for temporary stay.  


Therefore it could be inferred from the above   that  residential   dwelling  is   a  residential   accommodation  meant  for permanent  stay  and  does  not  include  guest  house,  lodge  or  like  places.  A residential accommodation to qualify for permanency of stay would typically have at least one room for exclusive use, a kitchen or facility to cook, essentials like electricity, water provided through metered/sub-metered connections or charged on actual usage, among others.


From the sample copies of Residential Service Agreement entered with the inhabitants the terms "Rent" and "Unit" have been defined by the applicant as under:


Rent - Monthly charges payable for the unit of residential accommodation, including maintenance fees for the premises, reimbursement of electricity and other common area charges and any other fees charged to the resident.


Unit    -  means a portion  of room at the campus allocated  by  the RM (Resident Manager) strictly for residential use and occupation by the resident, and includes any new area in the room allocated subsequently.

 

Offer of accommodation - means a statement offering the resident accommodation in form of a habitable unit in the concerned campus of service provider issued to the resident.


From the above it is evident that the resident/inhabitants are offered a unit i.e a portion of a room with a cot on monthly rental basis. Further monthly rent also is charged and collected for the unit only but not for the residential dwelling. Thus  the  impugned accommodation  being provided  does not qualify to  be a reggi6tial dwelling. Further it is seen that units are shared by one or more un-related inhabitants. Applicant charges all the inhabitants of a room individually and  not  for  a  room  as  a  whole.  It  is  apparent  from  the  above  that  the accommodation provided to each of the inhabitant is not a residential dwelling but a cot / a unit in the room; un-related people share the said room and invoices are raised per bed on monthly basis are not characteristic of a residential dwelling.


Further, it is also an admitted fact that the accommodation being provided by the applicant, out of the immovable property claimed as residential dwelling, does not have individual kitchen facility to each of the inhabitant and also cooking of food by inhabitants is not allowed, which are an essential characteristic for any permanent  stay.  On  this  count  as well,  the impugned  accommodation being provided does not qualify to be a residential dwelling and thus the question of using the same as residence does not arise.


The Residential Service Agreement (RSA) entered by the applicant with the inhabitants reveals the following information, in addition to others:


a)  The resident/inhabitant agrees to avail the services offered by the service provider (applicant) at the unit within the premises. (para-1)

 

b)  The minimum term of the RSA is 10 months (para-4)

 

c)  GST shall be payable over and above the accommodation service charges (consideration for the service) and Annual Maintenance Charges inclusive of GST if applicable (para-5)

 

d)  The  end  use  of  the  premises  is  for  long  term  shared  residential accommodation.   The resident/inhabitant shall occupy a designated unit and use the designated space along with the furniture and fixtures present         in the premises.  Resident shall not make any structural or physical changes         to the unit or the premises under any circumstances. (para-7)

 

e)  Following facilities are made available to residents during their residential         period-  Cot with mattress,  table with  chair and cupboard with locking         facility, one light and one fan per room and attached bathroom; Breakfast, lunch,         dinner   and   evening   tea/snacks, laundry, power   backup, housekeeping, security and RO drinking water(Para-8)

 

f)      Resident shall pay a monthly rent for an unit (para-10)


g)     Residents are not allowed to cook in their unit and any attempt to light a fire or heat anything in their unit is a fire hazard and may lead to immediate cancellation of the RSA.(para-12)

  

h)  Residents are required to return to the premises within 11 pm or such other time and may be informed to the residents from time to time by the RM. The premises will be locked in night, if any resident needs to be present outside of the premises, they may do so after obtaining prior consent of their parent, if applicable, and/or duly informing the RM.(Para 17).


This is a shared accommodation and the resident is expected to share the unit  with  co-residents.  It  is  the  Residents  individual  responsibility  to maintain  his/her possessions  securely  in  his/her Unit  and the  service provider or any of its officials, functionaries or staff including the RM shall not be held responsible under any circumstances for any loss or damage caused in this regard. (Para 20)


j)   The use of electric heaters, electric rods and other similar appliances are not entertained. Residents  should  take  prior  permission  before  using  any appliances and pay appropriate cost. No resident is allowed to engage private help in the form of housemaids or keep pet animals in the premises. (para-21)


All the above terms and conditions of the RSA reveal that the impugned accommodation being provided by the applicant are akin to provision of unit of accommodation in a paid guest house or a hostel and does not qualify to be a residential dwelling. Also the facilities such as food, furniture, appliance, cleaning, security, pest control etc., being provided by the applicant to the resident are not optional and the resident cannot choose the service provider. These facilities are mandatorily provided by the applicant and included in the monthly charges. Also the essentials like electricity and water are not charged based on usage, but a fixed amount is charged. Thus the service provided by applicant are unit accommodation for residence and not renting of residential dwelling.


Accordingly, it was decided that :


Renting of residential dwelling to the students and working women for residential purpose along with amenities and facilities such as food,  furniture,  appliance,  cleaning,  security,  pest control etc.,  on  monthly rental basis, as provided by applicant is not exempted under entry No.12 of Notification No.12/2017-Central Tax (Rate) dated 28.06.2017.


The impugned services of the applicant are covered under SAC 9963 and thus attract GST @ 12%,  in terms of entry number 7(i) of Notification No.11/ 2017-Central Tax (Rate) dated 28.06.2017, as amended. (as per day charges are less than 7500).



Copy of the Judgement:




Disclaimer:  We did interpretation of Respected Authority Decision for purely academic purpose. In case, there is any mistake in understanding of the order, we are apologised to the Authority.

 

 

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