The taxability of accommodation services for use as residence along with certain facilities was examined by Advance Ruling Authority (AAR) of Karnataka with reference to its classification and rate of GST. The appellate authority also confirmed the taxability, HSN classification and rate of GST.

In the instant case, the applicant was a company engaged in providing facility services such as supply of services, accommodation services provided by inns, guest house or place for lodging purposes and Rental or leasing services involving own or leased residential property. The applicant had entered into an agreement with  landlord for getting the 2nd floor of the building for accommodation purpose on monthly rent of Rs. 2,35,000/-. The applicant had further entered into an agreement with Sodexo Food Solutions India Private Limited for providing the sub-lease (sub-let) of above premises on monthly license fee (rent) and also provided facilities as per requirement of Sodexo Food Solutions India Private Limited Staff and Executives for residential accommodation. The applicant charged Rs. 5,25,000/- for services of rent with water and maintenance and also raised invoice for INR 1,22,893/-towards EMI per month for the additional facilities provided.

The applicant sought Advance Ruling from the Authority for Advance Ruling on the following questions:

(1) Classification of service provided by Sri DMS Hospitality Private Limited to Sodexo Food Solutions India Private Limited?

(2) Classification of service provided by the Building owner to Sri DMS Hospitality Private Limited?

(3) Applicability of GST Notification No. 12/2017-Central tax (Rate) dated 28th June 2017, “Services by way of renting of residential dwelling for use as residence” is exempt from GST?

(4) Applicability of GST on EMI per month charged from Sodexo Food Solutions India Private Limited and security services provided by Sodexo Food Solutions India Private Limited?

The Authority for Advance Ruling, vide Order dated 25.09.2019, ruled as follows:

(1) The Classification of service provided by Sri DMS Hospitality Private Limited to Sodexo Food Solutions India Private Limited is covered under SAC 997212 and hence under entry no. 16 of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 and the security services provided is covered under SAC 998529 and hence under Entry 23(ii) of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017 and are hence liable to tax at respective rates.

(2) The Classification of service provided by the building owner to M/s. Sri DMS Hospitality Private Limited is covered under SAC 997212 and hence liable to tax under entry no. 16 of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017.

(3) The Entry No. 12 of Notification No. 12/2017-Central tax (Rate) dated 28th June 2017 – “services by way of renting of residential dwelling for use as residence” is not applicable to the present case on hand.

(4) The EMI charged on the goods supplied is an installment for the goods transferred and is a supply of goods under clause 1(c) of Schedule II to the CGST Act and hence is liable to tax at the rate applicable to each of the goods supplied at the time of delivery of such goods.

[(2019) 30 GSTL 673; (2020) 78 GST 511; (2019) 10 TMI 1092; (2019) 110 taxmann.com 333; (2020) 4 Blooms 147 (AAR, Karnataka)].

Being aggrieved by the advance ruling, assessee preferred an appeal u/s 100 of the CGST Act, 2017 before the AAAR, Karnataka. However, there was a delay of 60 days in filing of appeal and condonation of delay was prayed.

The grounds of appeal, inter alia, include:

(a) GST is applicable only to premises used for accommodation services by Inns, guest house, lodging houses and exemption is provided in the case of renting of residential dwelling for use as residence, hence as per Notification No. 12/2017-Central tax (Rate) dated 28th June 2017 as “Services by way of renting of residential dwelling for use as residence” is exempt from GST.

(b) Typically accommodation in a guest house is for a shorter period and the landlord charges a tariff for each guest house and such charges are on a per day basis. Further, the landlord of the guest house also facilitates cooking and serving of food and housekeeping services similar to an Inn or a hotel accommodation. On the other hand, in the case of renting of residential dwelling, the landlord gives the residential flats on rent for a longer period like 2-3 yrs subject to an extension period.

(c) The landlord may provide beds, chairs, tables, etc as part of the amenities for some consideration which is included in the monthly rental value of the flats or may charge for it separately.

(d) Assessee do not provide any food or beverage or housekeeping facilities and that the period of stay at the rented premises is not temporary and there is reasonable degree of permanence.

(e) As per the agreement entered into with Sodexo Food Solutions, the accommodation would be only for residential use of the staff of Sodexo and the latter shall not use the said premises for office, business seminars etc or for any commercial purposes.

On condonation of delay, the AAAR observed that the provisions of Section 100(2) of the CGST Act mandates that an appeal should be filed within 30 days from the date of communication of the advance ruling order that is sought to be challenged. However, in terms of the proviso to Section 100(2) of the said Act, the Appellate Authority is empowered to allow the appeal to be presented within a further period of 30 days if it is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the initial period of 30 days. In the instant case, the appeal filed against the Advance Ruling order dated 25.09.2019 is evidently belated by 60 days. The appellant, however, had not explained the reason for the delay in filing the appeal. Be that as it may, in the interest of justice, and considering the fact that the delay is within the condonable powers of Authority, AAAR suo moto condoned the delay in filing this appeal and proceed with a decision on the merits of the case.

On renting of accommodation, it noted that KIADB is a statutory body constituted for the development of industries in the industrial areas of Karnataka. Lands are allotted by the KIADB to entrepreneurs only after the proposals for the proposed utilization of the land for industrial projects is approved by the competent authority. Therefore, it can be justifiably inferred that the land was allotted to the owner for industrial purposes and not for residential purposes. Therefore, the building on the land allotted by KIADB cannot be construed as residential building and consequently the building rented out by the owner to the Appellant was not a residential building. Therefore, the transaction between the owner and the Appellant is not one of renting of residential dwelling for use as residence. This transaction is in the nature of renting of non-residential building and hence is liable to be taxed under Heading 997212 and chargeable to tax at 18% GST under entry S.No 16 of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017.

On taxability of charges for other facilities provided, the AAAR observed that AAR’s finding that this amounts to supply of goods as per Entry No.1(c) of Schedule II to the Central Goods and Services Tax Act which reads “any transfer of title in goods under an agreement which stipulates that property in goods shall pass at a future date upon payment of the full consideration as agreed, is a supply of goods”. Accordingly, it is liable to tax at the rate applicable to each of the goods at the time the delivery of the goods is given to Sodexo Food Solutions India Pvt. Ltd. So also, the security services provided by the Appellant is liable to tax as applicable under SAC 998529 at 18% under entry 23(ii) of Notification No. 11/2017 – Central Tax (Rate) dated 28.06.2017.

In result, the AAAR upheld the impugned AAR and dismissed the appeal on all counts. [In Re: Sri DMS Hospitality Private Limited (2020) 40 GSTL 246; (2020) 8 TMI 527  (AAAR, Karnataka)].

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