In Advance Ruling No. KAR ADRG 25/2023 -AAR- PG/Hostel rent paid by inhabitants to M/s. Srisai Luxurious Stay LLP not eligible for GST exemption, rules AAR (Karnataka)
Members M.P. Ravi Prasad (State) & Kiran Reddy T (Central) [13-07-2023]

Read Order: In Re: M/s. Srisai Luxurious Stay LLP

Chahat Varma

New Delhi, August 2, 2023: The Karnataka bench of the Authority for Advance Rulings has issued a ruling stating that PG/Hostel rent paid by inhabitants to M/s. Srisai Luxurious Stay LLP (applicant), was not eligible for GST exemption under Sl. No. 12 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. The ruling was based on the finding that the services provided by the applicant did not fall under the category of renting of residential dwellings for use as a residence.

In the matter at hand, the applicant, was engaged in the business of developing, running, subletting, and managing paying guest accommodations, service apartments, and flats to cater to various types of customers. They sought an advance ruling on whether PG/Hostel rent paid by inhabitants would qualify for GST exemption, since the accommodations were used as residential dwellings. They also sought clarity on whether the charges collected towards allied additional services, would be considered as a bundled service along with the service of providing Hostel/Paying guest accommodation. They also inquired whether GST on reverse charge would be applicable on the rental to be paid to the landowners.

The Authority observed that a ‘residential dwelling’ was a residential accommodation, intended for permanent stay and did not include guest houses, lodges, or similar places. In the present case, the Authority noted that the applicant claimed to provide PG/Hostel services, which were akin to guest house and lodging services and cannot be considered as a ‘residential dwelling’. As a result, the PG/Hostel rent paid by inhabitants did not qualify for GST exemption under Sl. No. 12 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.

The Authority further noted that the applicant did not provide sufficient information to determine whether the charges collected for allied additional services were an integral part of the main supply of Hostel/Paying guest accommodation. However, based on the nature of these additional services, it was evident that they were optional and not all inhabitants may opt for them. Therefore, these facilities/services did not affect the main supply of Hostel/Paying guest accommodation, and the main supply would not be affected even if one or more of these services are not provided. As a result, the Authority held that these facilities/services were not naturally bundled with the main supply of Hostel/Paying guest accommodation and should be treated as separate services, which need to be taxed separately.

The Authority also ruled that GST on reverse charge will be applicable on the rental to be paid to the landowners by the applicant. This was because the services provided by the applicant were liable to GST, and therefore, the applicant was required to obtain GST registration.