Whether exemption prescribed under entry number 13 of notification no. 9/2017- integrated tax (rate) dated. 28th June, 2017 can be sought and the lessors (here Ambrish Vasudeva and 4 others) need not charge GST while issuing the invoice for the lease serv

PJ/Case Law/2020-2021/3573

Sri. Taghar Vasudeva Ambrish (Advance Ruling No. KAR ADRG 17/2020) dated 23.03.2020
Brief Facts: - The applicant along with four others collectively has let out a Residential complex to M/s. D. Twelve Spaces Pvt. Ltd which is engaged in the business of providing affordable residential accommodation to students on a long term basis (starting from 3 to 11 months). Along with such accommodation, the Company is also engaged in providing a host of other services such as maintenance, food, Wi-Fi etc. generally called as a Paying Guest Accommodation.
Issue: - 1. Whether exemption prescribed under entry number 13 of notification no. 9/2017- integrated tax (rate) dated. 28th June, 2017 can be sought and the lessors (here Ambrish Vasudeva and 4 others) need not charge GST while issuing the invoice for the lease service to m/s. Dtwelve Spaces Pvt. ltd.
2. Whether the lease service falls under the Exemption prescribed and can be described as “Services by way of renting of residential swelling for use as residence”? as listed in the aforesaid Notification.
Applicant Contentions: -

The applicant contends that “renting of immovable property” is covered under Schedule II of CGST Act 2017 which defines it as the supply of services on which the applicable GST rate is 18%.
The applicant further states that Schedule II Entry 2(b) reads as any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
The applicant further refers to the Notification No. 9/2017-Integrated Tax (Rate) dated 28th June, 2017 wherein Entry 13 of such Notification provides that: “Services by way of renting of residential dwelling for use as residence” are exempt from GST.
Further M/s. DTwelve Spaces Pvt. Ltd. Has entered into sub lease agreement with students for providing residential accommodations with living amenities, security, entertainment facilities for a long stay for a period varying from 3 months to 11 months. Thereby, DTwelve has concluded that the rental accommodation services provided by DTwelve to the students will not attract GST. Consequently, there would be no GST obligation on DTwelve in case of lease arrangement with their lessor too (Here Ambrish Vasudeva and 4 others). Therefore, DTwelve is of the opinion that the lessor should not charge GST to DTwelve when issuing the invoice for the lease service.
The applicant states that as they, Ambrish Vasudeva along with four others have let out a residential complex to M/s Dtwelve Spaces Pvt. Ltd. to conduct their business are of the view that GST should be charged for invoices raised towards lease service.

Reasoning of Advance Ruling: - The authority contended that right to use the immovable property without transfer of the ownership of the immovable property. This is in the course or furtherance of the business hence,the transaction between the lessor and the Company would constitute a “supply”.
The authority also refer entry no. 2(b) of second schedule to the CGST Act, 2017,
“(b) any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.”
Here, the applicant is not individually providing service but as a group of persons they are providing the services, after pooling in their assets. Since, the applicant is not the only one who is providing service to the company, so invoice needs to be issued by the group to the company and the transaction between the individuals and the Group are different transactions, as the individuals are distinct from the Group of Individuals.
The exact nature of the group cannot be ascertained and it is not a question and hence it is not answered. It is suffice here only to rule that the question of charging or not charging GST for the transaction between the applicant and the Company does not arise as the applicant himself is not effecting any supply of service to the Company directly.
“Entry 13. Heading 9963 or Heading 9972 – Services by way of renting of residential dwelling for use as residence”
This is related to “renting of residential dwelling “for use as residence”. The contract of the applicant group with the Company is verified and found that what is given is an immovable property consisting of only rooms with attached toilets as per the Layout of the leased premises annexed to the Lease agreement and does not fit into the meaning of a dwelling which means a house. They are like hotel rooms and the entire leased premises have 42 rooms, which can by no imagination be termed as a residential dwelling. Even if the same is given for residential purposes, the services provided are not for use as residence by the lessee.
Services by a hotel, inn, guest house, club site or campsite, by whatever name called, or other commercial places for residential or lodging purposes are covered by different entries in the schedule of this notification or under different notifications and this shows that rooms though given on rent for residential purposes would not amount to residential dwelling and hence the entry is not applicable for the transaction of the lessor with the lessee.
Ruling: -
1. The exemption prescribed under entry no. 13 of Notification No. 9/2017 -Integrated tax (Rate) dated 28th June 2017 cannot be sought and the lessors (as an entity) have to charge GST while issuing the invoice for the lease services to M/s DTwelve Spaces Pvt. Ltd, provided they are registered under the GST Act.
2. The lease services does not fall under the exemption “Services by way of renting of residential dwelling for use as residence” as listed in entry 13 of Notification No. 9/2017 – Integrated tax (Rate) dated 28th June 2017.
Comment:- The AAR order dated March 23 is likely to trigger a number of litigations. With this ruling, lessors may not have the comfort of presuming GST to be exempt, where end use of the property is residential.
On the basis of the ruling, tax authorities could well begin demanding 18% GST applicable on renting out commercial property from landowners leasing residential hostel-style accommodations to schools, colleges, educational institutions, offices, corporate, or any other establishment,
Prepared by CA Mahesh Parmar

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