In a recent ruling, the Karnataka High Court addressed the issue of whether renting residential premises used as hostels is exempt from GST, specifically in the case of Bhandary Gas Agency versus the Joint Commissioner of Commercial Taxes and others. The petitioner, Bhandary Gas Agency, had leased a building to Bhandary Foundation for housing students, teachers, and staff, with the premises certified as residential by the Gram Panchayat. Initially, an audit recognized the rental income as exempt under Entry 13 of Notification 9/2017, but a subsequent audit report reversed this position, leading to the rejection of a refund claim amounting to ₹62,50,716.
The petitioner contested this decision, citing a previous judgment in Taghar Vasudeva Ambrish, which established that leasing residential premises as hostels qualifies as renting a residential dwelling for residential use and is therefore exempt from GST. Despite this, the petitioner's refund claim was dismissed, prompting a challenge to the appellate order dated January 10, 2024.
Read More: GST – Delhi High Court: In cases involving allegations of fake ITC, multi-entity fraud or complex investigations, pre-consultation before SCN under 74 is not mandatory after 2020 amendment [Order attached]
The High Court ruled in favor of the petitioner, asserting that the case was indeed covered by the precedent set in Taghar Vasudeva Ambrish. The court found that the authorities had failed to apply this binding judgment, which led to an unlawful denial of the exemption and refund. Consequently, the appellate order was quashed, and the court directed the respondents to reconsider the refund application in line with the established legal principles, with a deadline of six weeks for completion.
Parties: Bhandary Gas Agency v. Joint Commissioner of Commercial Taxes & Anr.
Order Date: 05 November 2025
Facts –
- The petitioner leased a building to Bhandary Foundation for accommodation of students, teachers and staff, and the Gram Panchayat certified the premises as a residential dwelling.
- An audit under Section 65 initially accepted the petitioner’s claim that rent from residential dwelling is exempt under Entry 13 of Notification 9/2017, but a revised audit report later withdrew this position and rejected the refund claim of ₹62,50,716 paid under protest.
- The petitioner filed objections asserting that the premises were purely residential and that rent from such dwelling was exempt; however, refund was rejected and appeals were dismissed.
- The petitioner challenged the appellate order dated 10.01.2024 as contrary to the binding judgment in Taghar Vasudeva Ambrish, where leasing residential premises as hostels was held exempt.
Issue –
- Whether rent received from leasing a residential dwelling used as a hostel qualifies for exemption under Entry 13 of Notification 9/2017 and whether rejection of refund was lawful?
Order –
- The Court held that the issue is squarely covered by the Division Bench judgment in Taghar Vasudeva Ambrish, which conclusively held that leasing residential premises as hostels to students and working professionals constitutes renting of residential dwelling for use as residence and is exempt from GST.
- It held that the authorities failed to apply this binding precedent and could not deny exemption or refund on the basis of revised audit reports. The appellate order dated 10.01.2024 was therefore quashed as unsustainable in law.
- The respondents were directed to reconsider the refund application dated 26.09.2022 strictly in terms of the principles laid down in Taghar Vasudeva Ambrish. The reconsideration must be completed within six weeks.
