In Taghar Vasudeva Ambrish v. Appellate Authority for Advance Ruling, Karnataka, the Karnataka High Court held that a residential building rented to students or working women as hostel is exempted from payment of IGST on such services.
The petitioner and other co-owners executed a lease deed in favour of M/S. D Twelve Spaces Private Limited, with respect to a residential building having 42 rooms. Thereafter, the lessee leased it further as a hostel providing long-term accommodation (3 months to 12 months) to students and working professionals. Whether leasing of residential building as a hostel to students and working professionals covered by Entry 13 of Notification No. 9/2017 dated 28.09.2017, issued under the Integrated Goods and Services Tax Act, 2017?
Exemption Notification
The Central Government vide Notification no. 9/2017 dated 28.09.2017 under the Integrated Goods and Services Tax Act, 2017 exempted the use of residential premises for renting services from payment of Goods and Services Tax (GST).
The issue related to above notification was decided by Karnataka High Court which relied on the principles devised by the Constitution bench of Apex Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others and State of Maharashtra v. Shri Vile Parle Kelvani Mandal & Ors., which are as follows:
- Exemption notification should be given a strict interpretation. The burden of proof is on the assessee to show that his case is covered by the exemption notification.
- In case there is an ambiguity in the exemption notification, the benefit cannot be claimed by the assessee and it should be given such interpretation as is favourable to the Revenue Department.
- The ratio of Sun Export Corporation, Bombay v. Collector of Customs, Bombay was not correct.
No ambiguity
The Karnataka High Court ruled out the argument of ambiguity in Entry 13 and observed that it provides for exemption from payment of IGST for ‘services by way of renting of residential dwelling by way of use as residence.
What is ‘residential dwelling’?
Neither the Act nor the notification released under it provides for the definition of ‘residential dwelling’. It is well settled in law that when a word is not defined in Act itself it is permissible to draw general sense from dictionary. Therefore, the Court referred to the definition of ‘residential dwelling’ in paragraph 4.13.1 of Taxation of Services: An Education Guide issued by the Central Board of Indirect Taxes & Customs.
The Court also made reference to the Revised Master Plan 2015 of Bangalore city which provided that accommodation used as a hostel by students and working women fall within the residential category. In Kishore Chandra Singh v. Babu Ganesh Prasad Bhagat, the Supreme Court observed that residence means a place where a person eats, drinks, and sleeps and need not own it. Further, the duration of stay in a hostel is longer than compared to hotel, guest house, club, etc. Lastly, Court also referred to the meaning of the expressions ‘residence’ and ‘dwelling’ separately, as provided by the Concise Oxford English Dictionary 2013 edition and Black’s Law Dictionary 6th edition. The Court finally concluded that it cannot be said that the expression ‘residential dwelling’ does not include hostel, used for residential purposes by students or working women.
The Karnataka High Court lastly, observed that for determining the applicability of the exemption notification, following two questions need to be answered:
- What is being rented?
- For what purpose the residence is used?
The Court observed that a residential dwelling is rented to students and working women and that too, for residential purposes. Therefore, the petitioner falls under the category eligible for exemption from payment of IGST. Further, there is no requirement that the lessee himself needs to use the premises as residence.
Lastly, the registration of petitioner as a commercial establishment under the Karnataka Shops and Commercial Establishment Act, 1961 or a trade license issued by BBMP are wholly irrelevant considerations for determining the eligibility of the petitioner under the exemption notification.
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