GST on hostel / PG, Goods and Services Tax - GST

[Ethirajan Parthasarathy]

Very recently Madras High Court has ruled that no GST is payable by the landlord who has let out his property to another entity (Tenant) for running a hostel. I presume the said decision holds good even if the tenant is using the place for running paying guest accommodation.

The tenant in the above circumstances must be filing his income tax return for running hostel or PG as business income. In this situation, whether the tenant is liable to pay GST under RCM tax even though no GST (forward) is payable by the landlord.

Posts / Replies

[Sadanand Bulbule]

Dear Sir

Please refer entry 5AA  inserted vide Notification No. 05/2022-Central Tax (Rate) dated July 18, 2022 in the principal Notification No.13/2017- Central Tax (Rate) dated June 28, 2017 which states that registered recipient would be liable to pay GST under RCM for ‘service by way of renting of residential dwelling to a registered person’.
 

[Sadanand Bulbule]

Also I wish to add following:

Entry at Sl.No.14 was omitted vide Notification No. 4/2022-Central Tax (Rate) dated 13.07.2022. Thus in effect only services by way of renting of residential dwelling for use as residence are exempted from GST. Services by a hotel, inn, guest house, club or camp site by whatever name called, for residential or lodging purposes when value of supply is below One thousand rupees are liable to GST w.e.f. 18.07.2022.

[KASTURI SETHI]

Here the term, 'registered person'   implies for 'business purposes' . The end use matters. This legal  position existed in  pre-GST era also. 

I agree with Sh.Sadanand Bulbule, Sir.

[KASTURI SETHI]

Running PG is a  commercial activity. Hence taxable under GST.

[KASTURI SETHI]

Not litigation-free. The possibility of filing civil appeal  against Madras High Court judgement with the Supreme Court by the department cannot be ruled out.

[Ethirajan Parthasarathy]

Thanks to both of you for valuable inputs..As rightly pointed out by Mr.Kasturi Sethi, the Madras High Court decision cannot be taken as "Final". 

We are under the senerio that tenant has to pay tax under "RCM" going by Madras High Court decision, the landlord is not liable for GST under forward charge.  There are few AAR decisions that GST is leviable under forward charge by the landlord and hence there will be no question of RCM tax levy on the tenant.  

It is a tough call for consultants to advise the clients in the above situation.

[Ethirajan Parthasarathy]

In addition, If any one takes initiative of  paying tax, can the other party ( land lord or tenant) defend tax demand on them by the department taking opposite view

[Sadanand Bulbule]

Dear Sir

Since the interpretations and decisions of the adjudicating authorities are highly unpredictable and vulnerable, many a times the arguments on merits miserably fail.So the consultants are standing on the edge of the cliff without wings. "Lack of knowledge" and the height of ego are the root causes for the funeral of merits. This trend is making the consultants to think so differently about everything they thought before.

"A thing is not high if one can reach it; it is not  great if one can reason about it; it is not deep if one can see the bottom". __This was the dream of the aw makers while launching GST regime. And rest is all bitter history!

[Sadanand Bulbule]

Plz read it as law makers.

[Shilpi Jain]

The Madras HC decision and the Karnataka HC decision in the case of Taghar Vasudev - 2022 (2) TMI 780 - KARNATAKA HIGH COURT, bring out the main aspect that hostel room is still a residential dwelling.

These cases should be looked at bringing out this ratio and principle where the department has been arguing that hostel is a commercial business and cannot be regarded as a residential dwelling.

[Shilpi Jain]

This ratio needs to be applied in the context of the provisions appearing at each point of time. So today, the landlord renting a building (hostel set up) to a person who would run the hostel would still be liable to GST, but the tenant running the hostel and say renting to students will be exempt

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir,  Your grievance is correct but the original Adjudicating Authority is not the end of the road. In India still honesty, sincerity, integrity, morality,  devotion and dedication to duty exist. All is not bad.   All is not lost.

Also see the other side. Are all assessees honest  ?  Are all assessees give due respect to the  chair (Proper Officer) ?  Are the assessees without ego ?  Are they well disciplined when they appear before the Adjudicating Authority or Appellate Authorities ? These aspects are worth examination. So there are so many factors.

You are well aware of the percentage of the cases lost by the department. Majority of the cases are decided in favour of the asessees . In my view only 5% cases out of 1000 are won by the department. 

At the same time,   I do not rule out the possibility of  the major factors  i.e.  'ego'  'lack of knowledge' 'prejudiced mind' 'biased mind' which are bottlenecks  in the way of providing justice.

Disclaimer : These are my personal views  for the purpose of education of the readers of TMI and also in the interest of the assessees.

[KASTURI SETHI]

 A hostel and a paying guesthouse are residential dwellings. What makes the difference  is that whether it is being used for a  commercial purpose or not . The word, 'hostel' does not signify the purpose for a student only.