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TMI Blog2020 (11) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 dated 05.05.2020 issued by Authority for Advance Ruling, Andhra Pradesh. 1. Background of the Case: 1. M/s. Lakshmi Tulasi Quality Fuels, a sole Proprietorship firm of Dumpala Rama Thulasi (herein after referred to as "the Appellant") is engaged in supply of petroleum oils and lubricants. The Appellant is duly registered vide registration No.37ALMPD5548B1Z7 for payment of Goods and service tax in respect of the above mentioned services. 2. The appellant is also the absolute and sole owner of a building located at Plot No.67, Padmashree Gardens, Vattinagulapally, Rajendra Nagar, R.R. Nagar, Telangana. The said building is constructed on a residential land consisting of stilt, ground floor, first and second floors. 3. The appellant entered into a lease agreement dated 31st July 2019 with D-Twelve spaces private Limited (herein after referred to as "Lessee") to lease out the property as mentioned. The Lessee is a company incorporated under the provisions of the Companies Act, 2013 inter alia engaged in the business of running, managing and operating the day to day affairs of residential premises and sub-lease of such residential premises to individuals (including students) for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Property". It is an undisputable fact that services of renting of immovable property have de facto been provided by Appellant to the lessee covered under definition of Section 7 read with Entry No. 2 (b) of Second Schedule of CGST Act, 2017; b) The property so let out must be a residential dwelling- * Residential Dwelling was defined under erstwhile Service Tax law vide Para 4.13.1 of "Taxation of Services: An Education Guide" dated 20th June, 2012 published by Tax Research Unit, one of the Wings under CBIC (then CBEC) wherein it has been defined as 'any residential accommodation, but does not include hotel, motel, inn, guest house, camp-site, lodge, house boat, or like places meant for temporary stay'; * In the present matter - * The Leased Property is constructed upon a residential land - Lease Agreement dated 31st July, 2019. * In the records of Municipality itself, the usage of property so rented out to the Appellant to lessee has been listed as 'residential' (building usage) - Property Tax Assessment Details downloaded from the official website of Municipality as on 22nd June 2020 are submitted. * The intended purpose for which the Leased Property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s situated is classified as residential land use zone and as per the Zoning Regulations, 'hostels' can be operated in such zone after obtaining prior approval from competent authority (which has been duly obtained by the lessee in the present matter); * Billing pattern of both the services, i.e. per day tariff as compared to monthly rent also substantiate the fact that the nature and duration of stay is different for these two services; * Also, where hotel, motel, inn, guest house, etc. usually caters to travellers/tourists, impugned hostel is not meant for any traveller/tourist, rather is meant for only such students or working professionals who wish to stay with a permanence; and, * Furthermore, in the matter of Bandu Ravji Nikam v. Acharyaratna Deshbhushan, reported in 2003 (3) Bom CR 210; 2003 (3) MhLj 472, it was held that "Undoubtedly, "hostel" is nothing but a house of residence or lodging for students. Just because the respondent may charge some amount from the students for providing that facility, may not necessarily mean that it is a commercial or non-residential user. Further, there is perceptible difference between "hotel or lodging house" and 'student ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l pronouncements laying down some principles for this exemption under consideration (entry no. 13) a) In Re: General Manager Ordnance Factory Bhandara, cited in 2019 (26) G.S.T.L. 423 (A.A.R.- GST): Property was given as residence by employer, i.e. Applicant to its employees and the rent so collected was ascertained as exempt by the Ld. AAR. Impugned renting is also similar where only difference between the two being instead of property being rented out by employer, in the present case, it is being rented out by the Lessee itself whereas rest of the components of renting remains same, i.e. for working professionals and for use as residence. b) In Re: Borbheta Estate (P.) Ltd., cited in 2019 (106) taxmann.com 386 (A.A.R. - West Bengal): One property was rented out to a commercial entity (M/s L&T Ltd.) for residential purposes, which was held to be exempt as covered under Entry No. 13. In the present matter also, property is being let out by Appellant to the Lessee who in turn using the same for residential purposes. C) Observations/findings of Id. AAR are factually and legally incorrect a) Sub-lease agreement was not provided to Ld. AAR rather Resident's Enrolment Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riff category for F.Y. 2017-18 w.e.f. 01' October, 2017. It cannot be said that subsequent to this Order, Lawyers chambers inside the Court Complexes are covered under residential zone or will be called as residential property since electricity tariff was subsidized to Domestic category. d) Lessee is engaged in commercial activity of renting of rooms: It is a well settled proposition that if an activity is exempted by way of exemption notification, such activity falls under definition of 'supply' given in Section 7 of CGST Act, where Section 7 of CGST Act, 2017 provides that all such transactions/activities are covered (and ultimately chargeable to GST) which are made in the course or furtherance of business. Thus, definition of 'Supply' itself covers only such transactions which are made in the course or furtherance of business. If the service of renting of residential dwelling for use as residence is given under Exemption Notification, it must first be covered under Section 7 read with Section 7 (1A) of CGST Act, both of which covers only commercial activity done in the course of business. Thus, legislation itself provides exemption to such an activity whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lessor based on the invoice or the bill issued by the relevant authorities. As per Clause 13, the Lessee shall have the right to engage with third-party service providers for all activities required for the purpose including food catering, hospitality, security, cleanliness, event organization, transportation, management and supervision of the Total Property as deemed necessary by the Lessee for the Purpose. 4.3 To reiterate, the contract of supply of service of leasing of real estate property is between the Appellant and M/s. D-Twelve Spaces Private Limited. There is no dispute that this transaction is a taxable GST supply. However, what is in question is whether this transaction is exempted from GST in terms of SI. No. 13 of Heading 9963 or Heading 9972 of Notification No. 9/2017-(IT) Rate dated 28-06-2017. The relevant portion of the said Notification is extracted herein below for ready reference: S.No. Chapter, Section, Heading, Group or Service Code (Tariff) Description of Services Rate (per cent.) Condition (1) (2) (3) (4) (5) 13 Heading 9963 Or Heading 9972 Services by way of renting of residential dwelling for use as residence. NIL NIL 4.4 The Ld. AAR, And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "residence" in various licenses, agreements, etc., in their grounds of appeal. But the mere existence of the word or words "residential" or "residence" does not change the character of the property under lease. 4.5.2 In their appeal, the Appellant stated in para A.19 (e) "Also, the Sanctioned Plan dated 26Ih September 2017 for the Leased Premises, clearly demarcates the master Bedroom, Guest Bedroom, Pooja Room, Kitchen and Hall, etc. on each floor of the captioned property. It also depicts that the said Leased property is constructed as Residential property." However, as per para 2.4 of the Lease Deed dated 31.07.2019 it is stated "2.4 The Lessor(s) hereby confirm that the Leased Premises herein has 73 rooms with along with the 2700 sq.ft terrace area on the Execution Date."(sic). We are at a loss to understand how a Ground plus First and Second Floor building, with the said master Bedroom, Guest Bedroom, pooja room kitchen and hall could result into 73 rooms that was admittedly leased out as per the cited Lease Deed dated 31.07.2019. From the sheer number of rooms involved i.e., 73 rooms, the property is clearly not as per the "Sanctioned Plan" dated 26.09.2017 and is on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that the Lessee was in to the business of sub-Leases and that they would charge a rent or premium that would be retained wholly by the Lessee. This clearly shows the commercial nature of the transaction and that the property was not to be used as "residence" by the Lessee. The relevant extract is reproduced for ready reference. 12.3. The Lessee shall have the sole and absolute right to charge rent or/and premium from such sub-lessees or/and sub-licensees at such rates as the Lessee desires from time-to-time. 12.4. The Lessor(s) shall not have any claim over the rent or/and premium charged by the Lessee under Clause 12.3 (Right ty Sub-lease). (i) Clause 15 Signage: The Lessee shall have the right to deploy branding strategies on the Total Property ... this further cements the view that the entire property under Lease was to be used only for the commercial object of the Lessee and not for "residence". The relevant extract is reproduced for ready reference. 15. SIGNAGE 15.1. The Lessee shall have the right to deploy branding strategies on the Total Property and use all entrances, exterior walls, areas and structures on the Total Property, at its own costs and expense, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encement of the definitive Lease Agreement. This clearly brings out that the activity proposed / undertaken by M/s. D-Twelve Spaces Private Limited is commercial in nature and it was advised by the Legal Experts to get the Property tax of the said area assessed under commercial head from the date of commencement of the definitive Lease Agreement. 4.8 From the foregoing, we have no doubt in our minds that the Lease Property in question is not a "residential dwelling" and has not been "used as residence" by the recipient (the Lessee). We therefore agree with the Ld. AAR, Andhra Pradesh, that the supply under consideration is classifiable under 'Rental or leasing services involving own or leased non-residential property'. Such "Rental or leasing services involving own or leased non-residential property" is classified under the heading (SAC) 997212 under entry no.16 of Notification No.8/2017 Integrated Tax (Rate), Dt: 28.06.2017, and liable to IGST @ 18%. The exemption under SI. No.13 of Notification No.9/2017-IT (Rate) is not available to the Appellant. In view of the foregoing, we pass the following order Order The order of the Ld. AAR, Andhra Pradesh vide Order AAR No.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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