This Supreme Court judgment holds that renting a residential dwelling for use as a hostel qualifies for GST exemption under Entry 13, as the ultimate residential use by students satisfies the condition. The Court clarified that the exemption is activity-specific, not person-specific, and the lessee need not personally occupy the premises for the exemption to apply.
Facts Of The Case:
The dispute originated from a residential property in Bangalore, co-owned by the respondent, which consisted of 42 rooms in a four-storied building. On June 21, 2019, the co-owners executed a lease deed in favor of M/s DTwelve Spaces Private Limited, a company that operates as an aggregator. The lessee’s business model involved taking such properties on lease to sub-lease them as hostels, providing long-term accommodation to students and working professionals with stays ranging from three to twelve months.Seeking clarity on his tax liability, the respondent filed an application for an Advance Ruling under the GST Act, questioning whether the rental income from this transaction was exempt from GST under Entry 13 of Notification No. 9/2017, which exempts “services by way of renting of residential dwelling for use as residence.” The Authority for Advance Ruling (AAR) rejected his claim, holding that the benefit was not available as the lessee, being a company, was not using the premises itself for residence. The Appellate Authority for Advance Ruling (AAAR) affirmed this decision, adding that the property functioned more like a hostel, akin to commercial accommodation, rather than a traditional residential dwelling.Aggrieved, the respondent challenged the orders before the Karnataka High Court, which allowed the writ petition. The High Court ruled in favor of the respondent, holding that the exemption applied as the property was residential in nature and ultimately used for residential purposes by the students and professionals. It was this judgment of the High Court that the revenue (State of Karnataka) challenged before the Supreme Court in the present appeals.
Procedural History:
The case originated when Respondent No. 1 filed an application before the Authority for Advance Ruling (AAR), Karnataka under Section 97 of the Integrated Goods and Services Tax Act, 2017, seeking clarification on whether his rental income from leasing a residential property to a company for hostel purposes was exempt from GST under Entry 13 of Notification No. 9/2017. The AAR, vide ruling dated March 23, 2020, held against the respondent, ruling that the exemption was not available since the lessee-company was not itself using the premises for residence. Aggrieved by this decision, the respondent appealed to the Appellate Authority for Advance Ruling (AAAR), Karnataka under Section 100 of the Act. The AAAR, by order dated August 31, 2020, affirmed the AAR’s ruling, adding that the property functioned as a hostel akin to commercial accommodation rather than a residential dwelling. Challenging the AAAR’s order, the respondent filed Writ Petition No. 14891 of 2020 before the High Court of Karnataka. The High Court, by judgment dated February 7, 2022, allowed the writ petition, setting aside the orders of both lower authorities and holding that the exemption applied. Dissatisfied with the High Court’s decision, the State of Karnataka and the revenue authorities appealed to the Supreme Court by filing Civil Appeal Nos. 7846 and 7847 of 2023, which were heard together and disposed of by the present common judgment dated December 4, 2025.
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Court Observation:
The Supreme Court made several significant observations while interpreting Entry 13 of the Exemption Notification. The Court observed that the term “residential dwelling” is not defined under GST laws, and therefore relied upon the CBIC Education Guide dated June 20, 2012, which defines it as “any residential accommodation” excluding hotels, motels, inns, and guest houses meant for temporary stay. The Court further observed that in common parlance, residential dwelling means any building or structure used as a home, residence, or sleeping place, and cited various judicial precedents including the Bombay High Court’s decision in Bandu Ravji Nikam, which held that a hostel is essentially a house of residence for students and cannot be treated as commercial or non-residential merely because charges are collected.The Court critically observed that Entry 13 does not mandate that the lessee must personally use the premises as residence, and imposing such an implied condition would amount to rewriting the notification. It observed that the exemption is “activity-specific” and not “person-specific,” meaning the crucial factor is the nature of the activity (residential use) rather than the identity of the recipient. The Court observed that if the revenue’s narrow interpretation were accepted, it would defeat the legislative intent behind granting exemption for residential accommodation, as the 18% GST burden would ultimately be passed on to students and working professionals. Additionally, the Court observed that the 2022 amendment to Entry 13 and the subsequent Explanation added in 2023 clearly indicate that the legislative intent from the beginning was to exempt rental agreements for residential purposes, and allowing the revenue’s appeal would amount to giving retrospective effect to the amendment, which is impermissible in law.
Final Decision & Judgement:
The Supreme Court dismissed both civil appeals filed by the State of Karnataka and the revenue authorities, thereby affirming the judgment of the Karnataka High Court. The Court held that the respondent was entitled to the benefit of exemption under Entry 13 of Notification No. 9/2017 for the period from 2019 to 2022. The Court ruled that all three conditions for exemption stood satisfied: there was a supply of renting services, the property was a residential dwelling as evidenced by municipal records and its physical characteristics, and the premises were ultimately used for residential purposes by students and working professionals who stayed for extended periods ranging from three to twelve months. The Court clarified that the exemption does not require the immediate lessee to personally occupy the premises, and that the ultimate residential use by sub-lessees satisfies the condition. It emphasized that giving a narrow interpretation to the notification would defeat the legislative intent behind exempting residential accommodation from GST, as the tax burden would ultimately fall on students and working professionals. The Court further observed that the amendments made to Entry 13 in 2022 and 2023 merely clarified the existing position and did not indicate any change in the law, and allowing the revenue’s appeal would amount to impermissible retrospective application of these amendments. The judgment directed that pending applications stand disposed of, finally resolving the dispute in favor of the assessee.
Case Details:
Case Title: The State of Karnataka & Anr. v. Taghar Vasudeva Ambrish & Anr. Citation: 2025 INSC 1505 Civil Appeal No.: 7846 OF 2023 (With Civil Appeal No. 7847 OF 2023) Date of Judgment: December 4, 2025 Judges/Justice Name: Justice J.B. Pardiwala and Justice K.V. Viswanathan
Download The Judgement Here