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Hostel and Accommodation service operating through rental premises along with food-related service taxed @ 9% CGST

The Tamil Nadu AAR in the case of In re. Nithiyashree Ladies Hotel [Advance Ruling No. 77/AAR/2023 dated September 04, 2023] held that, hostel and accommodation service operating through rental premises along with food-related service is not eligible for exemption and such entry would fall within the purview of tariff heading “9963”, taxable at the rate of 9 percent CGST as per Sl. No. 7(vi) of the Notification No. 11/2017, Central Tax (Rate) dated June 28, 2017 (“the Rate Notification”).

Facts:

Nithyashree Ladies Hostel (“the Applicant”) provides boarding and lodging services by way of taking the premises on rent and further letting it out to college female students and working women as hostel accommodation. The Applicant along with accommodation service are also provides food-related services.

The Applicant has filed an application for advance ruling on whether the hostel and accommodation service along with food-related service is eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-Central Tax (Rate) dated June 28, 2017 (“the Exemption Notification”). Further, question has been raised in Advance ruling on whether in the aforesaid scenario, the Applicant is required to take registration and if yes, what specific tariff entry would be applicable.

Issue:

Whether the hostel and accommodation service operating through rental premises along with food-related service is eligible for exemption?

Hostel and Accommodation with Food Service Taxed at 9% CGST

Held:

The Tamil Nadu AAR in Advance Ruling No. 77/AAR/2023 held as under:

  • Noted that, accommodation is a location where someone is accommodated or provided with lodging. However, the term residence refers to a place where someone resides permanently or for an extended period of time along with family/dependents.
  • Opined that, the purpose of the Exemption Notification is to avoid taxation of residential properties which are taken on rent and the benefit of exemption could not be extended to the premises which do not qualify as residential dwellings for use as residence. Further, the place rented out is neither a residential dwelling nor rented out for use as residence.
  • Held that, the service supplied by way of providing hostel accommodation, the Applicant is not eligible for exemption as per the Exemption Notification.
  • Further held that, the Appellant is required to register under relevant GST Laws in the State of Tamil Nadu if the aggregate turnover exceeds twenty lakh rupees.
  • Further held that, the supply of service by way of providing hostel accommodation falls under Tariff Heading 9963 and is taxable at the rate of 9 percent CGST as per the Rate Notification.
  • Further held that, the hostel accommodation services would be considered as principal supply in which, in-house food service is being provided along with aforesaid service in composite manner. Therefore, the composite supply would be taxed at the rate of 18 percent.

Conclusion: The Tamil Nadu AAR’s decision clarifies the taxability of hostel and accommodation services with food. Businesses in this sector should take note of the 9% CGST rate and ensure compliance with registration requirements. This ruling reinforces the importance of understanding the specific nature of the premises for exemption eligibility.

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(Author can be reached at info@a2ztaxcorp.com)

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