Residential Property given on Rent to a Registered Person for Guest House Use Subjects to GST under RCM: AAR [Read Order]

Residential Property - Rent -Residential Property on Rent - Registered Person - Guest House - GST - RCM - AAR - taxscan

According to the decision made by the Odisha Authority for Advance Ruling (AAR), the applicant (registered person), who obtained the service by renting residential space to use as a guest house, is subject to the Goods and Services Tax (GST) under the Reverse Charge Mechanism (RCM) in light of the Notification No. 05/2022-Central Tax (Rate) dated July 13, 2022.

The applicant, M/s Indian Metals and Ferro Alloys Limited, has stated that it has a manufacturing unit at Therubali and at Choudwar and captive mines located at Sukinda, Odisha.

Further, it has taken on rent certain premises at New Delhi and Jajpur in Odisha for use as a guest house. The guest houses are used to provide food and accommodation for the employees of the Applicant who visit New Delhi/Jajpur for official purposes.

According to what was previously stated, one of the units is rented from a registered person, while the other is rented from an unregistered individual. The homes rented for guest house purposes in both situations are situated in residential areas.

The bench took the applicant’s contention into consideration and noted the Notification No. 05/2022- Central Tax (Rate) of July 13, 2022 amended Notification No. 13/2017- Central Tax (Rate) on June 28, 2017, by inserting a serial number 5AA. The applicant believes that renting a residential property to an individual who is registered, whether it is used for residential purposes or for any other purpose, will be subject to the Reverse Charge Mechanism (RCM).

Also contended that the term “Residential Dwelling” is not defined anywhere in the GST Act or in the earlier service tax regime.

However, as referred by the Applicant, the CBIC in its education guide dated 20.06.2012 has explained the phrase “residential dwelling” in clause 4.13.1 by interpreting the term in normal trade parlance as any residential accommodation, but does not include hotel, motel, inn, guest house, camp – site, lodge, houseboat, or like places meant for temporary stay.

It was submitted that as the term guest house is not covered within the ambit of residential dwelling as provided in education guide, the service provider at New-Delhi is claiming GST on its invoice under forward charge mechanism which is being paid by the Applicant.

The bench of G.K. Pati and P.K. Mohanty highlighted the notification No. 05/2022-Central Tax (Rate) dated the 13th July, 2022 CBIC, notified that with effect from 18th July 2022, service by way of renting of residential dwelling to a registered person shall be attracting GST under RCM.

It was observed that the liability to pay GST @ 18% under the RCM will arise on the recipient (tenant), if he is a registered person under GST with no other condition.

Further, it may be noted that type or nature/purpose of use of residential dwelling i.e. for residence or otherwise by the recipient, has not been a condition in the said RCM notification. Hence, service of renting of residential dwelling to a registered person, would attract RCM irrespective of the nature of use.

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