Supreme Court rules that leasing residential dwellings to companies for sub-letting as hostels/student accommodations qualifies for GST exemption under Entry 13 of Notification No. 9/2017, provided the ultimate use remains residential. Court adopts purposive interpretation to uphold legislative intent.
MAIN ISSUE: Whether the service of leasing residential premises provided to a company (which then sub-lets to students/working professionals as hostel accommodation) qualifies for GST exemption under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017.
YES, SUCH LEASING QUALIFIES FOR EXEMPTION. The Court held that Entry 13 of Notification No. 9/2017, which exempts "services by way of renting of residential dwelling for use as residence," applies even when:
Lease Agreement: Co-owners leased 42-room residential property in Bangalore to M/s DTwelve Spaces Pvt Ltd
AAR Ruling: Authority for Advance Ruling held NO exemption - company not using property itself
AAAR Appeal: Appellate Authority affirmed AAR - property more akin to sociable accommodation
High Court Order: Karnataka High Court allowed exemption - Entry 13 clear and unambiguous
Amendment: Entry 13 amended - "except where rented to a registered person"
Explanation Added: Clarified exemption available if registered person rents for personal residence
Supreme Court Verdict: Upheld High Court - Hostel rentals to companies qualify for GST exemption when used for residential purposes
Verify if your property qualifies as "residential dwelling" - not hotel, motel, inn, guest house meant for temporary stay.
Ensure property will be used as residence (hostels, PG accommodations, student housing qualify if stay is long-term).
Maintain Khatha extract, layout plans showing residential classification, lease agreement specifying residential use.
Ensure lessee intends to use property for residential purposes (hostel/PG accommodation qualifies).
Apply exemption under Entry 13 of Notification 9/2017 for period 2019-2022 (pre-amendment).
| Legal Provision | What It Means | Application in This Case |
|---|---|---|
| Entry 13, Notification 9/2017 GST Exemption |
Exempts "services by way of renting of residential dwelling for use as residence" | Applies to hostel rentals when ultimate use is residential |
| Section 2(102) CGST Act Residential Dwelling |
Not defined in GST law - refer to Education Guide 2012 | Hostel accommodation qualifies as residential dwelling |
| Education Guide 2012 CBIC Clarification |
"Residential dwelling means any residential accommodation... not meant for temporary stay" | Binding on revenue authorities |
| Article 142 Constitution Complete Justice |
Supreme Court's power to do complete justice | Used to interpret exemption purposively |
Any building/structure used or intended as home, residence, or sleeping place by one or more persons maintaining common household. Does NOT include hotels, motels, inns, guest houses for temporary stay.
Interpretation method focusing on legislative purpose rather than literal meaning. Court considers what law aims to accomplish and interprets accordingly.
Exemption granted based on nature of activity (renting for residential use) rather than identity of person involved (individual vs company).
Exemption from tax liability under specific conditions. Different from IBC moratorium - here it means freedom from GST payment.
PRE-July 18, 2022: Exemption available for all residential rentals
POST-July 18, 2022: Exemption NOT available if rented to registered person
POST-Jan 1, 2023: Exception if registered person rents for personal residence
"Entry 13 grants exemption from GST for renting of residential dwellings for use as residence. On a strict construction thereof, all three requirements are satisfied. Once the exemption notification is applicable, it should be construed liberally. Thus, if the conditions are satisfied, the benefit should be available to both lessees and sub-lessees."
The Court emphasized that if 18% GST is levied on transactions between property owners and companies (who then sub-let to students), the tax would ultimately be passed on to students and working professionals, defeating the legislative intent behind granting exemption for residential use.
This content is for informational purposes only and does not constitute legal advice. Consult a qualified legal professional for specific legal guidance. The information provided is based on judicial interpretation and may be subject to changes in law. Note: The exemption rules changed after July 18, 2022 - consult a tax professional for current applicability.
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This analysis decodes a complex GST judgment to help property owners and students understand their rights regarding hostel accommodations and tax exemptions.