In a significant ruling, the Madras High Court has held that hostels being used for residential purposes will not attract goods and services tax. The ruling by Madras High Court judge Krishnan Ramasamy has quashed a decision by the Tamil Nadu State Appellate Authority for Advance Ruling that had said that this would attract GST at the rate of 18 per cent.

In its ruling, the Madras High Court held that GST is not leviable on hostels as the end use comes under the purview of residential dwelling for use of residence.

“…this Court is of the considered view that the issue of levy of GST on residential accommodation should be viewed from the perspective of recipient of service and not from the perspective of service provider, who offers the premises on rental basis,” it held.  

Several writ petitions had been filed on the issue by private hostels for ladies providing residential accommodation and food to college students and working women.

Tax experts noted that renting for residential reasons is exempt under GST but there remained ambiguity on the rent and hence, exemption was not allowed. The Madras HC ruling emphasises that exemption would be available and such exemptions should be seen from the lens of service recipients via-a-via service providers.

Abhishek Jain, Indirect Tax Partner & Head, KPMG said, “This ruling outlays important principles for determining GST rates and related exemptions.  Hostels, paying guest houses and other similar temporary stays have been seeking clarity on the issue for long; especially in light of the disputes raised by revenue authorities,” he said. 

Given the complexity involved, it will be interesting to see if the revenue authorities accept the verdict of the High Court or pursue further litigation for final resolution in the Apex Court, he further noted.