GST on additional services provided with accommodation Services





Sri DMS Hospitality Private Limited vs GST AAAR Karnataka Order No. KAR/AAAR-14-H/2019-20



Facts of the case: - DMS Hospitality Private Limited( Appellant) is engaged in providing accommodation services or leasing services involving own or leased residential property has entered into an agreement with Dr. Banraji B.H on 21-Mar-2018 for getting the building with 2 floors at Bidadi Industrial area on a monthly rent of 235,000 per month for 3 years exclusively used for accommodation purpose..

The appellant entered into a sublease agreement with Sodexo Food Solutions India Private Limited for the same building at Bidadi Industrial Area for the residential accommodation of the staff and executives of Sodexo Food Solutions India Private Limited on a monthly rent of 525,000 per month and 122,893 per month towards additional facilities

Applicant Contention: - 1)The Appellant contends that GST is applicable only to premises used for accommodation services by Inns, guest house, lodging houses and exemption is provided in the case of renting of residential dwelling for use as residence, hence as per Notification No. 12/2017- Central Tax (Rate) dated 28th June 2017 as “Services by way of renting of residential dwelling for use as residence” is exempt from GST. They submitted that the term ‘dwelling’ is not defined in the GST law or notification. However, based on definitions under various dictionaries, the term ‘dwelling’ means a house, flat or other place of residence. 2)They also submitted that they provide residential accommodation to approx. 600 staff of Sodexo Food Solutions who are not temporary staff of Sodexo Food Solutions but would stay at the premises for more than a year; that the rent agreement is valid for a period of 36 months with a further extension of 11 months. In the event a staff of Sodexo Food Solutions leaves the organization, he or she will vacate the premises and a new staff member will be allotted the flat. Further, they also submitted that they are also eligible for exemption on the monthly EMI charges collected from Sodexo Food Solutions India Private Limited for providing additional amenities and security services because the same has been used for residential dwelling purpose.


Ruling: - A rental agreement for residential dwelling will invariably make a mention of the type of dwelling, the number of rooms and the facilities available in the dwelling. On perusal of both these agreements, it is observed that absence of above information in the agreement appears to indicate that the building which was rented out by the owner was not suitable for use as dwelling for residence. Besides the said property is in the industrial areas of Karnataka wherein the lands are allotted by KIADB (Karnataka Industrial Development Board) to entrepreneurs for industrial purpose. Therefore, the building on this land allotted by KIADB cannot be construed as residential building and consequently the building rented out by the owner to the Appellant was not a residential building. Hence this transaction is renting of non-residential building and hence is liable to be taxed under Heading 997212 and chargeable to tax at 18% GST under entry SI. No 16 of Notification No 11/2017 CT (R) dated 28-06-2017. With reference to the sublease agreement, the premises rented out to the Appellant by the owner is a non-residential premise, the same continues to be non-residential when subleased by the Appellant. It is not of relevance whether the employees of Sodexo Food Solutions use the premises for residential purposes. What is important to determine the taxability of a supply is the nature of the supply made by the service provider. In this case, the Appellant as service provider is merely sub-leasing a nonresidential premise to another entity. This activity of renting/leasing of property which is primarily non-residential is taxable under Heading 997212 and chargeable to tax at 18% GST under entry SI. No 16 of Notification No 11/2017 CT (R) dated 28-06- 2017. Moreover, the security services provided by the Appellant is liable to tax at 18% under entry 23(ii) of Notification No. 11/2017- Central Tax (Rate) dated 28.06.2017