Tax Vista

Your weekly tax recap

Edn. 265 - 8th December 2025

Kasi Viswanathan V

A. Litigation:

SC: No condition that lessee itself has to use the premise as residence for exemption

In this case, a co-owner of a residential property leased it to M/s DTwelve Spaces Private Limited, which further leased it out as a hostel providing long-term accommodation to students and working professionals (3-12 months). The question was whether such leasing qualifies for exemption under Sr. No. 13 of Notification No. 9/2017-IT (Rate) dated 28.06.2017, "services by way of renting of residential dwelling for use as residence".

The AAR [2020-VIL-104-AAR] and AAAR [2020-VIL-48-AAAR] denied the exemption. The Karnataka High Court [2022-VIL-110-KAR] in Writ filed set aside those rulings and allowed benefit of exemption. The Revenue carried the matter on Appeal to the Supreme Court.

Since the term "residential dwelling" is not defined in GST law, both sides relied on the Service Tax Education Guide. The Revenue argued that a property with 42 rooms is akin to accommodation types excluded from definition such as hotels, motels, inns, guest houses, lodges, houseboats or similar lodging meant for temporary stay. The taxpayer emphasized that hostels are not specifically excluded and, importantly, the stay was not temporary in nature.

Based on education guide, dictionary meaning, common parlance understanding, past decisions on residential aspect, Khata extract, layout plans, the Hon'ble Court concluded that the property is a "residential dwelling". The issue thus narrowed to one point: whether the lessee itself has to use the property as residence for the exemption to apply?

The Revenue's consistent argument that the lessee itself must use the property as residence was reinforced by submitting that exemption is to the supply, accordingly it is implied that that recipient of supply must satisfy the condition of exemption. Their contention was further supported by pointing out that exemption attaches to the first supply (lessor → lessee), and use by sub-lessees in a second supply (lessee → sub-lessees) as residence cannot determine eligibility for the first supply.

The Hon'ble Supreme Court observed that under service tax, only commercial renting was taxable. Under GST, renting of both residential and commercial property is taxable. Therefore, exemption was allowed for residential property used for residential purposes. If the same is used for commercial purposes, then it is taxable. Exemption Notification does not mandate that the lessee must use the residential dwelling as its own residence. Reading such a requirement into the entry would amount to adding words, which is impermissible.

Legislative intent is to grant exemption for 'residential use'. If supply is held taxable, then tax will be passed on to students and working professionals which is not the objective. The Court further noted that exemptions under this entry are activity-specific, not person-specific. Accordingly, the Hon'ble Supreme Court dismissed the Revenue's appeal and not interfered with High Court ruling allowing exemption.

As is often seen in exemption matters, the issue oscillates between the principles laid down in Dilip Kumar (strict construction) and Mother Superior (beneficial exemption as to be interpreted based on object sought to be achieved). A key takeaway is Revenue's view on Mother Superior decision [2021-VIL-43-SC] viz., the presence of word 'principally' in section 3(1)(b) of the Kerala Building Tax Act, allowed the Supreme Court to conduct dominant object test and extend exemption in the said case.

This ruling applies only up to 18.07.2022, after which the entry has been amended. It is also relevant to note that the Madras High Court decision in Thai Mookambikaa Ladies Hostel followed the afore-said decision and allowed exemption in respect of the second supply, applying a recipient-perspective test. The recipient-perspective approach is essentially an offshoot of the broader principles recognised in the present decision [2025-VIL-94-SC].

'Tax Offences' and 'FIRs'

The Petitioner approached the Hon'ble Punjab & Haryana High Court seeking quashing of an FIR. As per the preliminary inquiry, the firm was observed to be non-existent and non-functional, allegedly creating fake documents for availment of ITC.

The Petitioner argued that since the activities under investigation constitute offences under the GST Act (a special law), action under the general law [then IPC, now BNS] could not be initiated. It was contended that the GST Act is a complete code in itself, which provides for cancellation of registration when the firm is found non-existent, and therefore prosecution under IPC is invalid. Reliance was placed on the procedure prescribed under Section 132(1)(b) of the GST Act.

On the other hand, the State counsel argued that the FIR was lodged based on information reported by the tax authorities. Since false documents were allegedly created, prosecution under IPC provisions such as Sections 420, 467, 468, and 471 is justified. Further, as the alleged offence is cognizable under Section 132(1)(b) of the GST Act, filing of FIR by the police at the instance of tax authorities cannot be considered illegal.

The Hon'ble High Court noted a "thin line" in deciding whether the offence should be tried under the GST Act (special law) or under the IPC (general law). If the very purpose of obtaining GST registration was to commit cheating, it may fall within offences of cheating/forgery under IPC. Conversely, if the offence pertains to limited transactions while conducting normal business, the matter will fall within the purview of GST regime.

In this case, as the investigation is already complete and charges have been framed, the High Court further found that the objection of actions to be solely under GST law had not been raised earlier and accordingly, the order with regard to framing of charge, which has not been challenged, has become final. Thus, the request to quash the FIR was rejected, leaving the Petitioner to raise contentions before the trial court. The Hon'ble High Court held that learned trial court would examine whether the alleged offence falls under IPC provisions or under the GST Act.

The Hon'ble Tripura High Court in Shri Sentu Dey [2021-VIL-440-TRI], observed that certain acts may fall within a special statute (GST) and at the same time may also have an element of an offence under IPC. In such situations, the issue will be answerable to both laws. After these observations, Court in the said case referred to Supreme Court precedents involving IPC and other special statutes to emphasize that tax administration should not invoke IPC provisions without application of mind in every case.

The safeguard under Article 20(2) of Constitution of India (double jeopardy) applies if the offences are same. The protection does not apply if the offences are different, while the acts or activities leading to the offence may be common or overlapping. Also relevant is Section 134 of the CGST Act which mandates that offences under GST are to be tried only in accordance with its procedures. Surprisingly, even though the matter appears to be squarely related to GST, the FIR in this case was registered under Section 11 of the CST Act, 1956 read with various IPC provisions [2025-VIL-1239-P&H].

B. GSTN Notification & Advisory

(i) GSTN issues advisory on hard locking of reporting values in Table-3.2 of GSTR-3B: From the November-2025 tax period onwards, GSTN has issued an advisory (05.12.2025) that the values in Table 3.2 of GSTR‑3B for inter-state supplies made to unregistered persons, composition taxpayers, and UIN holders will be non-editable. The details will be auto-populated from filed outward-supply returns (GSTR‑1 / IFF), and from amendments through GSTR-1A filed for the same period.

(GSTN advisory dated 05.12.2025)

(ii) GSTN issues additional FAQ for GSTR-9/9C for FY 2024-25: GSTN issues FAQ dated 04.12.2025 covering 8 questions on filing the annual return GSTR-9/9C for FY 2024-25 (in addition to its earlier FAQ dated 15.10.2025). Important clarification is that reversals of ITC for FY 2023-24 that are carried out in GSTR-3B of FY 2024-25 are not required to be reported in Table 7 of GSTR-9 for FY 2024-25.

(GSTN FAQ dated 04.12.2025 and 15.10.2025)

(iii) GSTN advisory and update on Furnishing of bank account details: GST Rules were amended vide Notification No. 38/2023-Central Tax dated 04.08.2023. Rule 10A requires taxpayers to furnish bank account details within 30 days from the date of grant of registration. Rule 21A provides for suspension of registration in case of non-compliance of Rule 10A and revocation of suspension upon submission of bank account details.

GSTN had earlier issued an advisory on 20.11.2025 regarding implementation of the amended Rule 10A on the Portal, now, on 05.12.2025, it has been updated that same has been implemented. The registration will be now auto-suspended if bank account details are not provided within the prescribed 30 days, and upon submission of bank account details, the cancellation proceedings will be automatically dropped.

(GSTN advisory dated 20.11.2025 and update dated 05.12.2025)

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)