Case Note & Summary
The case involves an appeal by the State of Karnataka against a High Court judgment that allowed a writ petition filed by Taghar Vasudeva Ambrish, the co-owner of a residential property in Bangalore. The property, a four-storied building with 42 rooms, was leased to M/s D Twelve Spaces Private Limited on 21.06.2019, which in turn sub-leased it as a hostel to students and working professionals for stays ranging from 3 to 12 months. The respondent sought an advance ruling under GST laws on whether the service of renting the property as a hostel was exempt from tax under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017, which exempts 'services by way of renting of residential dwelling for use as residence'. The Authority for Advance Ruling (AAR) and the Appellate Authority for Advance Ruling (AAAR) both held that the service was not exempt, as the property was used as a hostel, not as a residence. The High Court of Karnataka, however, set aside the AAAR order, holding that the service fell within the exemption. The Supreme Court, in the present appeal, reversed the High Court's decision. The Court analyzed the scope of the exemption notification, emphasizing that exemption provisions must be strictly construed. It held that the term 'residential dwelling' in Entry 13 refers to a dwelling used as a residence by a family or individual, not a commercial establishment like a hostel. The leasing of the property to a company for sub-letting as a hostel indicated a commercial purpose, and the service was not for 'use as residence' in the ordinary sense. The Court restored the AAAR's ruling, thereby denying the exemption and holding that the service is taxable under GST.
Headnote
A) Goods and Services Tax - Exemption Notification - Renting of Residential Dwelling - Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017 - The issue was whether leasing of residential property as a hostel to students and working professionals qualifies as 'renting of residential dwelling for use as residence' for exemption. The Court held that the service does not fall within the ambit of Entry 13 as the property is used as a hostel, not as a residence in the ordinary sense, and the exemption is strictly construed. (Paras 1-2) B) Goods and Services Tax - Advance Ruling - Appellate Authority - The respondent sought an advance ruling on the taxability of renting residential property as a hostel. The AAR and AAAR ruled against exemption, but the High Court set aside the AAAR order. The Supreme Court restored the AAAR ruling, holding that the service is taxable. (Paras 2-4)
Issue of Consideration
Whether the service of leasing residential premises as a hostel to students and working professionals falls within the ambit of Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017, which exempts services by way of renting of residential dwelling for use as residence.
Final Decision
The Supreme Court allowed the appeals, set aside the High Court judgment, and restored the AAAR ruling that the service is not exempt under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017.
Law Points
- Interpretation of exemption notifications
- GST
- renting of residential dwelling
- hostel accommodation
- Entry 13 of Notification No. 9/2017-Integrated Tax (Rate)
