The Andhra Pradesh Authority of Advance Ruling (AAR) has recently on the application filed by M/s Lakshmi Tulasi Quality Fuels, ruled that renting of dwelling to a commercial entity for further sub leasing to individuals (including students) viz use as hostel is not exempt from GST and is rather liable to GST @ 18%.
Facts of the case:
- The applicant, M/s Lakshmi Tulasi Quality Fuels has entered into lease agreement with D-Twelve Spaces Pvt Ltd (lessee) which is inter alia engaged in the business of running, managing, and operating the day to day affairs of the residential premises and sub-lease of such residential premises to individuals (including students) for the purpose of long-stay accommodation.
- As per the terms of the lease agreement , in consideration of grant of lease the lessee shall pay to applicant a monthly rent of Rs 7,20,000/- and all operational costs such as electricity, telecom and water charges as per actual meter reading or based on the invoice or the bill issued by the relevant authorities.
- The lessee has the right to sub-lease the aforesaid property during the lease term to any thirrd party with prior intimation to the applicant for purpose of long stay accomodation.
Question on which Ruling is sought:
Whether the applicant is eligible for the exemption from payment of GST on the monthly rentals received by her on the lease of her residential building at to D-Twelve Spaces Private Limited, as per Sl.No. 13 of the Notification No.9/2017 dated 28.06.2017.
Andhra Pradesh AAR: Highlights and Ruling
- Apart from renting of the rooms, the inmates are also being provided with food and hospitality services and the lessee is registered taxable person.
- Though the applicant claims that she has rented out a residential dwelling for use as a residence, it appears that the premise is a non-residential property. Considering the number of rooms and amenities provided in it, boarding and hospitality services extended to the inmates, and all the clauses of the agreements discussed- above, it appears that the building was constructed for the purpose of running a lodging house. It is clear that the lessee is engaged in the commercial activity of renting rooms in the dwelling and providing boarding and hospitality services to the inmates.
- It is clear that the lessor has done renting out her dwelling for commercial activity viz use as hostel and supply of such services, in facts and circumstances of the case are classifiable as “Rental or leasing services involving own or leased non-residential property” under Service Code (Tariff) 997212. It is taxable in the hands of the lessor and is liable for IGST at the rate of 18%.
Based upon above the AAR adjudged that the classification of service provided by applicant is covered under SAC 997212 and hence under entry no. 16 of Notification No. 8/2017 – Integrated Tax (rate) dated 28.06.2017, liable to IGST @ 18%.
It was further ruled by AAR that the entry No.13 of Notification No.9/2017 (Integrated Tax) (Rate) dated 28.06.2017 “services by way of renting of residential dwelling for use as a residence” is not applicable to the present case on hand.
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