Karnataka AAR: GST Exemption on Rent Income Derived from the Social Welfare Dept. for Operating a Hostel

The rent received from renting out the building to the Department of Social Welfare for running the boys’ hostel for the weaker section is waived from the GST (Goods and Services Tax), Karnataka Authority for Advance Rulings (KAAR) noted.

The petitioner, K.A. Sujith Chandan, leased a building to the Department of Social Welfare, Government of Karnataka, which the department used as a boys’ hostel for Scheduled Tribes. The petitioner argued that the services furnished before the department are waived from taxation under Article 243W of the Constitution as per entry No.3 Notification 12/2017 Central Tax (Rate).

The above-mentioned Entry reads as Pure services (excluding works contract service or other composite supplies involving the supply of any goods) furnished to the Central Government, State Government Union territory or local authority or a Governmental authority via any activity concerning any function entrusted to a Panchayat under article 243G of the Constitution or concerning any function entrusted to a Municipality under article 243W of the Constitution.

It was argued by the Authority that the applicant has fulfilled two conditions to claim the exemption on the supply of services. The services furnished before the State Government are pure services in nature as per the notification is the first one. The other is that the applicant had rented the building to the Scheduled Tribe of Welfare Department for running the department’s hostel.

The function assigned to the panchayat under Article 243G of the Constitution, as defined in the 27th entry of the 11th Schedule, is related to the welfare of weaker sections, specifically Scheduled Castes and Scheduled Tribes, and this satisfies the second condition.

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The AAR Authority including M P Ravi Prasad ( SGST Member ) and Kiran Reddy T( CGST Member ) regarded the submissions and expressed that the petitioner is furnishing pure services to the state government connected to functions under Article 243G of the Constitution. This falls under Entry No. 3 of Notification 12/2017 Central Tax ( Rate ) on June 28, 2017, and is thus not within GST.