1. Till 17.07.2022 the services by way of renting of residential dwelling for use as a residence were unconditionally exempted from GST vide Sr. No. 12 of Notification No. 12/2017-CT (Rate). However, from 18.07.2022 the said services became taxable if the same were supplied to a registered person and in such a situation the tax was required to be paid by the recipient. Therefore, the ambit of the exemption was considerably reduced and the exemption was available from 18.07.2022 only if the residential dwelling is rented to an unregistered person.
2. An issue, therefore, arose in the case of the proprietor of a business who is registered under GST and who rented a residential dwelling for their own personal use. A strict interpretation of the amendments made w.e.f. 18.07.2022 led to a view that such proprietors shall be liable to pay GST on the rent under the reverse charge mechanism (RCM). However, via our communication dated 18.07.2022, we expressed a view that a proprietor taking a residential dwelling on rent for his own use is not the recipient (since it is not for the purpose of business) and hence shall not be liable to pay the tax under RCM.
3. Now vide Notification No. 15/2022-CT (Rate) dt. 30.12.2022 an Explanation has been added to the said Sr. No. 12 of Notification No. 12/2017-CT (Rate) to the effect that exemption shall be available where the registered person is the proprietor of a proprietorship concern and rents the residential dwelling in his personal capacity for use as his own residence and such renting is on his own account and not that of the proprietorship concern.
4. Therefore, in view of the aforesaid Explanation the registered proprietor shall not be liable to pay GST on the rent incurred in respect of the residential dwelling for their own use. In other words, GST shall be payable if the residential dwelling is rented for use in a proprietorship business (e.g., for use as a guesthouse, etc.)
5. The following observations in respect of the aforementioned Explanation may be noted:
- It can be contended that the given Explanation will apply w.e.f. 18.07.2022 (i.e., the date from which the exemption was curtailed) and not from 30.12.2022 (i.e., the date from which the Explanation was added). Hon’ble Supreme Court in the case of Subdaram Pillai v Pattabiraman AIR 1985 SC 582 has recognized several objectives for an Explanation which inter alia includes an objective to clarify the meaning of the words and serve as an aid to interpretation. GST Council at their 47th meeting (28th & 29th June 2022) stated in the Press Release that the exemption under discussion has been withdrawn only in respect of the renting of a residential dwelling to business entities (registered persons). Hence it can be contended that the addition of the Explanation is to clarify the meaning of the words contained in Sr. No. 12 and serve as an aid to suggest that the intention was to continue the exemption to renting of residential dwelling by the proprietor for own use. Hence it can be said that the given Explanation will apply w.e.f. 18.07.2022.
- In view of the retrospective application of the given Explanation, the registered proprietors who have paid the GST in respect of the residential dwelling for their own use and did not avail of the ITC (rightly) can consider filing the refund claim u/s 54 of the CGST Act, 2017.
- It may be noted that the given Explanation does not expressly apply to the renting of a residential dwelling by a registered partnership firm/company for use for residence by the partner/director. Hence GST shall be payable under the reverse charge mechanism by such registered firm/company.
