Hon’ble High Court of Karnataka vide its Order dated 03.02.2022 in the matter of Taghar Vasudeva Ambrish v. Appellate Authority for Advance Ruling & Ors. in Writ Petition No. – 14891 of 2020, held that the Leasing out of residential premises to an entity who is using it as ‘hostel’ to students and working professionals is covered under Entry No. 13 of Notification No. 09/2017 (Integrated Tax Rate) dated 28.09.2017, hence, exempt under GST.

Facts –

• The Petitioner is a co-owner of the residential property having 42 rooms in Bengaluru and the petitioner along with other co-owners executed a lease deed in favour of the lessee, namely ‘M/s D Twelve Spaces Private Limited’ (“the Lessee”).
• The Lessee leased out the aforesaid residential property as ‘Hostel’ for long term accommodation to students and working professionals with the duration of stay ranging from 03 to 12 months.
• The petitioner in view of Entry No. 13 of Notification 9/2017 – Integrated Tax (Rate) dated 28.06.2017 which provides ‘exemption for renting services provided with respect to residential dwelling for use as residence’, sought clarification with regard to its eligibility to seek exemption for the renting services provided and filed an application before the Authority of Advance Ruling, Karnataka (AAR, Karnataka) under Section 97 of the Act.
• The AAR, Karnataka vide its order dated 23.03.2020 held that the renting of residential dwelling for use as residence is not covered under entry 13 and the benefit of exemption as per notification 9/2017 is not available.
• The Petitioner against the aforesaid order dated 23.02.2020 preferred an appeal before the Appellate Authority for Advance Ruling (AAAR, Karnataka), and the AAAR, Karnataka while passing the impugned order 31.08.2020 held that the property rented out by the Petitioner is a hostel and cannot be termed as residential accommodation or residential dwelling and denied the benefit of exemption stating that the exemption is available only if it has been used as residence by a person who has taken the same on rent (i.e. by the Lessee himself).

Petitioner’s Plea –

• It was submitted on the behalf of the petitioner that residential dwelling is not defined in the Act and as per its normal trade parlance meaning – ‘any residential accommodation which is used for long term stay has to be considered as residential dwelling’.
• The zoning regulations of Bengaluru provides that the ‘hostels’ are allowed to operate in the residential category plots.
• The Hostels have to be treated as ‘residential accommodation’ as it has been used for residential purpose by the students and the working professionals.
• There is no condition in the notification that tenant alone must use it as residence and cannot further sub-let as residence.
• The Petitioner relied on the judgments in State of Kerala v. Mother Superior Adoration Convent, cited in 2021 (5) SCC 602, Bandu Ravji Nikam v. Acharyaratna Deshbhushan Shikshan Prasara Mandal, cited in 2003 3 MHLJ 470 and the decision of Advance Ruling Authority in Re: Borbheta Estate (P) Ltd., West Bengal, reported in 2009 (27) G.S.T.L. 54 (AAR-G.S.T.)

Respondent’s Plea –

• It was submitted on behalf of the respondents that the lessee runs a business leasing out of premises and the expression used in the exemption notification is ‘residential dwelling’ which cannot be termed as ‘residence’.
• Referring to the registration certificate issued to the petitioner under the Karnataka Shops and Commercial Establishment Act, 1961, Respondents submitted that the petitioner is engaged in the commercial activity as it is registered as ‘commercial establishment’.
• Relying on Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others, cited in 2018 (9) SCC 1, submitted the exemption notification has to be strictly construed and in case of any ambiguity, it has to be construed in the favour of revenue.

Observations –

The Hon’ble High Court after considering Entry no. 13 of the Notification No. 9/2017 and the decisions in the matter of The State of Maharashtra v. Shri Vile Parle Kelvani Mandal & Ors., cited in SCC ONLINE SC 18, Commissioner of Central Excise, Mumbai v. Fiap India Pvt. Ltd. & Anr., cited in (2012) 9 SCC 332 and Commissioner of Central Excise v. Madhan Agro Industries India Private Limited, cited in 2018 15 SCC 733, observed that expression ‘residential dwelling’ being not defined in the Act has to be understood in its popular sense.

Held –

• That entry No. 13 of Notification No. 9/2017 which provides for exemption with respect to ‘services by way of renting of residential dwelling by way of use as residence’ is clear and unambiguous, however the expression ‘residential dwelling’ is not defined in the Act.
• The definition of ‘residential dwelling’ in erstwhile Service tax law from Education Guide dated 20.06.2012 issued by CBIC, i.e. ‘residential dwelling means any residential accommodation and is different from hotel, motel, inn, guest house etc, which is meant for temporary stay’ is binding on the respondent.
• The accommodation used for the purpose of hostel is classified in residential category, further referring to judgment of the Hon’ble Supreme Court decision in the matter of Kishore Chandra Singh v. Babu Ganesh Prasad Bhagat, cited in AIR 1954 SC 316 and the Bombay High Court decision in the matter of Bandu Ravji Nikam (supra), held that the hostel is used by the students for the purpose of residence and the duration of stay is more as compared to hotel, guest house.
• Hon’ble High Court observing that if the expression is not defined in the Act, it is permissible to refer to the dictionary meaning of the expression and referring to the dictionary meanings of the ‘residential dwelling’ and decisions of Hon’ble Supreme Court in Mohinder Singh v. State of Haryana, cited in AIR 1989 SC 1367 and Commissioner of Central excise, Delhi v. Allied Air-Conditioning Corpn., cited in 2006 7 SCC 735, held that hostels used for residential purpose by the students and working women is covered under ‘residential dwelling’.
• The residential dwelling is being rented and used by the students and working women for the purpose of residence and there is no such condition in the exemption notification that the lessee itself has to use the premises as residence.
• The AAAR findings that the hostel accommodation is more akin to sociable accommodation and the petitioner is registered as commercial establishment under the Karnataka Shops and Commercial Establishment Act, 1961 are not relevant in determining the eligibility of the petitioner for exemption.

The Hon’ble High Court with the above findings quashed the impugned order dated 31.08.2020 and allowed the writ petition laying down that the service provided by the petitioner is covered under Entry 13 of Notification 9/2017 dated 28.09.2017 namely ‘Services by way or renting of residential dwelling for use as residence’ and is entitled for the benefit of exemption under the notification.