Karnataka HC - Residential premises used as a hostel is exempted from the payment of GST 

Recently, the Karnataka High Court held that leasing residential property as a hostel is exempted from payment of Goods and Services Tax. It is covered under Entry 13 of Notification No.9/2017, of 'services by way of renting a residential dwelling for use as a residence' issued under the Integrated Goods and Services Tax Act, 2017 (GST Act).

The Petitioner was a co-owner of a residential property in Bengaluru consisting of 42 rooms. The Petitioner leased the premises to M/s D Twelve Spaces Private Limited, who in turn leased the property as a hostel accommodating students and working professionals. 

On June 28, 2017, the Central Government issued the aforementioned notification. The notification granted exemption of a few services from payment of GST. One of the services mentioned in the notice was renting services with respect to a residential dwelling for use as a residence.

The Petitioner filed an Advance Ruling application u/s 97 of the GST Act before the Authority for Advance Ruling (AAR), seeking clarification on his eligibility to avail the exemption. The AAR held that services of Petitioner do not fall under the exemption notification. Further, the lessee itself is not using the accommodation, so the lessee must be charged.

The Petitioner filed an appeal to the Appellate Authority. The Appellate Authority held that the property is a hostel building that is "more akin to sociable accommodation rather than a residential accommodation."

The benefit of exemption is available only if the property is used as a residence by the same person who has leased it.

And hence, the Petitioner filed an appeal before the HC. The Petitioner argued that "residential dwelling" has not been defined in the Act. Therefore, its popular or well-known meaning should be taken into account. Moreover, there is no condition that only the tenant must inhabit the premises. 

The Court observed that it is a rule of statutory interpretation of fiscal statutes that if anything has not been defined, they have to be interpreted in their popular sense. Moreover, in such events, dictionaries can be referred to. From the reference to the dictionaries, the expression 'residence' and 'dwelling' have a similar connotation, and therefore, no different meaning can be assigned to 'residential dwelling.' The Court rejected the respondent's contentions and concluded that the service of the Petitioner is covered under the exemption of the notification.

Author: Papiha Ghoshal