16.03.2023: Service of renting of residential dwelling to registered person would attract reverse charge mechanism irrespective of its ‘nature of use’: Odisha AAR

The Odisha Authority of Advance Ruling (AAR) in the case of M/s Indian Metals and Ferro Alloys Limited vide Order No. 04/ODISHA-AAR/2021-22 dated 23.02.2023, held that the applicant (registered person) has received the service by way of taking residential premises on rent for use as its guest house, hence the said services received shall be subject to GST under RCM in view of NN. 05/2022-CT(Rate) dated 13.07.2022 w.e.f. 18.07.2022.

In this case, the applicant has manufacturing unit in the State of Odisha. The applicant has taken on rent certain premises in New Delhi and Jajpur, Odisha for use as guest houses. The guest houses are used to provide food and accommodation for the employees of the company who visit New Delhi for official purposes and also for the employees who visit the mining office at Jajpur. Further, one of the apartments is rented by a registered person, the other is rented by an unregistered person. In both cases, the houses taken on rent for guest house purpose is located in residential area.

The applicant stated that that the term “residential dwelling” is not defined anywhere in the GST Act or in the earlier Service Tax regime. However, the CBIC in its education guide dated June 20, 2012, has explained the phrase “residential dwelling” in clause 4.13.1 by interpreting the term in normal trade parlance as any residential accommodation that does not include hotel, motel, inn, guest house, camp-site, lodge, houseboat, or other places meant for a temporary stay. Accordingly, the service provider at New Delhi used to claim GST under Forward charge mechanism (FCM), as the guest house is not covered within the meaning of residential dwellings.

The applicant has sought an advance ruling, as whether services received by a registered person by way of renting residential premises used as a guest house of the registered person is subject to GST under Forward charge mechanism (FCM) or Reverse charge mechanism (RCM).

The AAR observed the submission of the applicant and the rent agreement copies furnished, and is of the view that the nature of rented properties clearly appear to be residential properties used for commercial purpose.

Further, the AAR noted that the dynamics of renting of residential property under GST has changes w.e.f. 18th July, 2022. The CBIC vide Notification No. 05/2022-Central Tax (Rate) dated 13.07.2022, has brought amendment in the list of services on which RCM is applicable. Accordingly, if the residential property is rented out to a registered person under GST, the liability to pay GST shall be under RCM and will arise on the recipient i.e. tenant with no other condition. Also, it is to be noted that type or nature/purpose of use of residential dwelling i.e. residence or otherwise by the recipient has not be a condition in the aforesaid notification. Hence, the services of renting of residential dwelling to a registered person, would attract RCM irrespective of the nature of use.

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