GST Posts

Is GST Exempt on Leasing Out Building For Hostel Accommodation?

Service by way of renting of residential dwelling, for use as residence, is exempt from GST vide Entry 12 of Notification No.12/2017-Central Tax (Rate) dated June 28, 2017 (as amended). Where an owner leases out his property and the lessee sub-lets / sub-licences to students / workers for long-term hostel accommodation, can the property owner claim the aforesaid exemption?

HOSTEL BUILDING – A RESIDENTIAL DWELLING?

The term “residential dwelling” is not defined either in the statute or in the delegated legislation. Hence, it should be interpreted as per common trade parlance. A hostel is generally understood as an establishment providing accommodation to students, workers and the like. On the other hand, residential dwelling is where people reside and is treated as home. If the building was constructed / leased with the intent of providing hostel accommodation, it is akin to sociable accommodation compared to what is commonly understood as residential accommodation. Hence, the said property is not a residential dwelling within the meaning of exemption entry.

HOSTEL BUILDING – USED AS RESIDENCE?

It is generally argued that students reside in the accommodation for about three to twelve months, consequent to which there is a certain degree of permanence in the stay to be termed as residence. However, the dwelling should be used as residence to attract the exemption entry. That is, the term “for use as residence” implies the service recipient should use the dwelling as residence. However, the lessee (recipient) uses the said property for running its business of paying guest accommodation.

AUTHOR’S COMMENTS

The aforesaid view was upheld recently by the Appellate Authority for Advance Ruling (Karnataka)[1]. At this juncture, it is pertinent to recollect the landmark judgment of the Hon’ble Supreme Court[2] that when there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the assessee and it must be interpreted in favour of the revenue.

The aforesaid post should not be confused with the exemption on services by a hotel, inn, etc. (for residential or lodging purpose) having value of supply of a unit of accommodation below or equal to Rs.1,000 per day or equivalent.

 

[1] Order No. KAR/AAAR-01/2020-21 dated August 31, 2020

[2] Civil Appeal No.3327 of 2007; Order dated July 30, 2018

Srinivasan V, Advocate

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