Summary
A co-owner leased a residential building to a company that sub-let it as long-stay hostel accommodation for students and working professionals. The rent he received was exempt from IGST under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate) for the period before the 2022 amendment. Entry 13 does not require the lessee itself to use the dwelling as its residence, and the revenue's appeals were dismissed.
Issues
- Whether a building of 42 rooms let out for long-term hostel accommodation is a "residential dwelling" under Entry 13 of Notification No. 9/2017-Integrated Tax (Rate).
- Whether the exemption for renting of a residential dwelling "for use as residence" is lost because the lessee company does not reside there but sub-leases it to students and working professionals.
- Whether the amendment to Entry 13 with effect from 18/07/2022, excluding renting to a registered person, applies to the earlier period.
Provisions considered
- Entry 13, Notification No. 9/2017-Integrated Tax (Rate) dated 28.06.2017, under the Integrated Goods and Services Tax Act, 2017The entry exempts services by way of renting of residential dwelling for use as residence. The Court held its three conditions met: a renting service, a residential dwelling, and use as residence. Use by sub-lessees sufficed, since the entry is activity-specific and does not require the lessee itself to reside there. (¶¶ 39, 47, 48, 49, 50, 51, 55, 63)
- Entry 13 as amended w.e.f. 18.07.2022 and Explanation w.e.f. 01.01.2023, Notification No. 9/2017-Integrated Tax (Rate), as amendedFrom 18/07/2022 the exemption does not apply where the dwelling is rented to a registered person; the revenue's stand in effect sought to apply this amendment retrospectively, which is impermissible. The later Explanation confirmed that the exemption always targeted residential use. (¶¶ 65, 66, 67, 68)
- CBIC Education Guide dated 20.06.2012, para 4.13.1 ("residential dwelling"), Finance Act, 1994In the absence of a GST definition, the Court considered the service-tax era explanation that a residential dwelling is residential accommodation other than hotels, inns, lodges and similar places meant for temporary stay, along with case law and dictionary meanings. (¶¶ 36, 41, 45, 46, 47)
Held
- Any residential accommodation meant for long-term stay can be a residential dwelling. A student or working professionals' hostel is residential use, not commercial use merely because a charge is levied; here municipal records also showed the property as residential, so it was a residential dwelling. (¶¶ 43, 44, 46, 47)
- Entry 13 contains no condition that the tenant or lessee must itself use the dwelling as a residence; reading in such a requirement would add a condition to the entry. Use as residence by the sub-lessees satisfies the third condition. (¶¶ 49, 51)
- An exemption notification is construed strictly when deciding whether a case falls within it, but once it applies it is construed liberally; on that approach the benefit extends where a lessee sub-leases the dwelling for residential use. (¶¶ 54, 55, 56, 57)
- Read purposively, Entry 13 is meant to keep rented property used as a residence free of GST. Levying 18% on the lease to the aggregator would pass the tax on to the students and working professionals and defeat that intent. (¶¶ 52, 53, 58, 60, 61, 62)
- Entry 13 is an activity-specific, not a person-specific, exemption, so its availability does not depend on the identity of the service recipient. (¶¶ 63, 64)
- The exemption ceased for the respondent only from 18/07/2022, when Entry 13 was amended to exclude renting to a registered person; the amendment cannot be applied retrospectively to the earlier period. (¶¶ 50, 65, 66)
Result
Revenue's appeals dismissed; High Court judgment granting the Entry 13 exemption for the pre-amendment period upheld.