Religious Trust to pay GST on renting of temporary residential rooms for consideration to devotees- Karnataka AAAR

Introduction

Under GST, Supply is considered a taxable event for charging tax. The liability to pay tax arises at the ‘time of supply of goods or services’. Thus, determining whether or not a transaction falls under the meaning of supply is important to decide GST’s applicability.

The GST council has fitted over 1300 goods and 500 services under four tax slabs broadly of 5%, 12%, 18% and 28% under GST. Certain supplies which are covered under Notification No.12/2017- Central Tax (Rate) Dated 28-06-2017 as amended by the Notification No.02/2018-Central Tax (Rate) dated 25-01-2018 are exempted from the levy of GST (i.e no GST will be charged on such supplies).

According to Entry 13 of the above notification, Services by a person by way of-

a. conduct of any religious ceremony

b. renting of precincts of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income tax Act, 1961 or a trust or an institution registered under section 10(23C)(v) of the Income tax Act or a body or an authority covered under section 10(23BBA) of the said Income tax Act

Provided that nothing contained in entry (b) of this exemption shall apply to:-

1. renting of rooms where charges are Rs 1000 or more per day
2. renting of premises, community halls, kalyanmandapam or open area, and the like where charges are Rs 10,000 or more per day
3. renting of shops or other spaces for business or commerce where charges are Rs 10,000 or more per month

Whether renting of temporary residential rooms for consideration to the devotees and renting of space for shops and stalls for the purpose of religious programmers where the predominant object is not to do business but for advancement of religion was exempted vide Notification No.12/2017- Central Tax (Rate) Dated 28-06-2017?

The issue under consideration was thrown light on in the case of Acharya Shree Mahashraman Chaturmas Pravas Vyvastha Samiti Trust vs AAR Karnataka.

Facts of the case:

1. The Appellant is a religious charitable trust registered under Section 12AA of the Income Tax Act, 1961 carrying out religious and charitable activities.
2. The Appellant conducted a religious function from July 2019 to November 2019 at Bengaluru.
3. In order to cater to the needs of devotees, the Appellant had erected temporary accommodation facilities for the use of devotees during the period of the religious function. The Appellant provided 5 different types of accommodation for the devotees.
4. The charges for accommodation under Category I, II, III and IV was on per room basis and was less than Rs 1000 per room per day.
5. The charges for accommodation under Category V i.e dormitory was on per bed basis ranging from Rs.250 per bed per day but less than Rs 1000 per bed per day.
6. The Appellant also provided food and beverages to the devotees at subsidized rates.
7. Appellant also provided space without consideration to other registered persons who supplied food and beverages to the devotees for consideration

Appellant sought an advance ruling in respect of the following questions:

1. Whether the applicant is liable to pay tax on renting of temporary residential rooms for consideration to the devotees and renting of space for shops and stalls for the purpose of religious programs where the predominant object is not to do business but for advancement of religion?
2. Whether the applicant is liable to pay tax on renting of temporary residential rooms under category I to category V, to the devotees to stay for the purpose of religious programs where charges per room is less than one thousand per day, if answer to the 1^st question is yes?
3. Whether applicant is liable to pay tax on renting of space for stalls, where the predominant object is not to do business but for advancement of religion, if answer to the 1^st question is yes?
4. Whether the applicant is liable to pay tax on supply of food and beverages at subsidized rates to the devotees, where the predominant object is not to do business but for advancement of religion?
5. Whether the applicant is liable to pay tax on providing space for registered person without consideration for supply of food and beverages to the devotees, where consideration is received by registered person directly from devotees?
6. Whether applicant is liable to pay tax for acting intermediary for booking hotel rooms to the pilgrims from outside?

The Karnataka Authority for Advance Ruling (AAR) held that:-

1. The applicant is liable to pay tax in renting of temporary residential rooms for consideration to the devotees and renting of space for shops and stalls.
2. The applicant is liable to pay tax on renting of temporary residential rooms of all categories if the declared tariff of a unit of accommodation is Rs. 1000-00 or more per day or equivalent.
3. The applicant is liable to pay tax on renting of space for stalls.
4. The applicant is liable to pay tax on supply of food and beverages at subsidized rates to the devotees
5. The applicant is liable to pay tax on providing space for registered person without consideration for supply of food and beverages to the devotees, only if the applicant and such registered person are covered under the definition of “related persons” as defined in Explanation to Section 15 of the CGST Act, 2017.
6. The applicant is liable to tax for acting as an intermediary for booking of hotel rooms to the pilgrims from outside, if he does not satisfy all the conditions prescribed for a pure agent (i.e the services must be procured from suppliers of accommodation service in addition to the service he supplies on his own account).

The Appellant was aggrieved by the ruling of the AAR in so far as the renting of 2BHK and dormitory was concerned since under these two categories the charges are per room for a 2 BHK unit and per bed for the dormitory and in both the cases, the charges were less than Rs 1000 per room/bed per day.

Grounds of Appeal

1. The Appellant submitted that entry No 13(b) of Notification No 12/2017 CT (R) dated 28-06-2017 provides exemption to renting of room where the charges are less than Rs 1000 per day.
2. It is generally accepted rule and normal business transaction that room shall be provided based on each contract with each person separately. In the case of dormitory, it is not on basis of room but on the basis of each bed separately.
3. They submitted that generally dormitory contains more than one bed. Therefore, in dormitory, the contract for renting shall be on the basis of bed only.
4. Hence the exemption should be understood on the basis of each bed separately and not the whole dormitory.
5. With regard to the charges collected for renting of 2BHK, Appellant submitted that Notification No 12/2017 CT (R) dt 28-06-2017 provides exemption for renting of rooms.
6. If the premises contain more than one room, the exemption shall be made applicable for each room separately.
7. For the above reasons, the Appellant pleaded that the charges per bed needs to be considered in respect of renting of dormitory and charges per room needs to be considered in respect of premises containing more than one room and on that basis exemption should be granted if the said charges are less than Rs 1000 per bed/room.

Proceedings of Appellate Authority for Advance Ruling (AAAR)

Observations of the AAAR on the Provisions of Law

1.The issue which was in appeal was limited to the point whether exemption from GST is available to the Appellant on the renting of dormitory consisting of 12 beds and renting of 2 BHK where the charges per bed (in the case of dormitory) and per room (in the case of 2 BHK) is less than Rs 1000 per day.

2. The Appellant has claimed the benefit of exemption from GST on the accommodation provided in terms of entry No 13 of Notification No 12/2017 CT (R) dt 28-06-2017.

3. AAR held that the Appellant is liable to pay tax on renting of temporary residential rooms of all categories, if the declared tariff of a unit of accommodation is Rs 1000 or more per day.

4. The Appellant is aggrieved by this ruling in so far as the renting of 2BHK and dormitory was concerned since under these two categories the charges were per room for a 2 BHK unit and per bed for the dormitory and in both the cases, the charges were less than Rs 1000 per room/bed per day.

5. The Appellant had claimed the benefit of entry No 13 (b) where, renting of a precinct of a religious place owned or managed by a religious trust is exempted from GST.

6. It was not in dispute that the Appellant was a religious trust registered under Section 12AA of the Income Tax Act, 1961 and is carrying out religious and charitable activities. In terms of the entry No 13 of the Notification, there are two activities/services which are exempted:-

a. conduct of a religious function;

b. renting of precincts of a religious place to the general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961

7. AAAR was concerned with the activity at (b) above. The entry clause (b) of Sl.No 13 merely states ‘renting of precincts of a religious place to the general public’.

8. The exclusions given in the proviso to this clause states that the exemption shall not apply to the following:

a. renting of rooms where the charges are Rs 1000 or more per day,

b. renting of premises, community halls, kalayan mantapsor open area, and the like where charges are Rs 10,000 or more per day;

c. renting of shops or other spaces for business or commerce where charges are Rs 10,000 or more per month.

9. On a conjoint reading of the clause (b) of Sl.No 13 and the exclusions, it was evident that the exemption under clause (b) applies to renting of rooms where the charges are less than Rs 1000 per day, renting of premises, community halls, kalayana Mantaps or open area, and the like where charges are less than Rs 10,000 per day and to renting of shops or other spaces for business or commerce where charges are less than Rs 10,000 per month.

Whether the renting of temporary accommodations by Appellant will be liable for exemption?

1. In the instant case, the Appellant had erected temporary accommodations where the religious event was conducted.
2. AAAR found that the Appellant was not renting out ‘rooms’ but rather was renting out units of accommodation comprising of 2 bedrooms, hall, kitchen, restroom, toilet.
3. The entire unit with facilities like water, electricity, cot, bed, pillow, bedspread and air-conditioner was given out on rent. The devotee was also given cooking facility in this unit.
4. Therefore, a unit of accommodation of this kind which was termed by the Appellant as a 2BHK Category I type of accommodation cannot be considered as renting of rooms and will not be covered in the entry Sl.No 13 of Notification No 12/2017 CT (R) dated 28-06-2017.
5. Similarly, the renting out of beds in a dormitory was also not akin to renting of rooms and hence it would not qualify for exemption under clause 13(b) of the said Notification.

AAAR agreed with the ruling of the AAR and held that the renting of the 2 BHK unit and the dormitory will be chargeable to GST as a single unit where the value of supply will be the charges for the full 2BHK unit / dormitory and not the charges for each room / bed and is liable to tax, in terms of entry Sl.No 7 of Notification No 11/2017 CT(R) dated 28-06-2017 as amended by Notification No 20/2019 CT (R) dated 30-09-2019.

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