2026-VIL-1028-CESTAT-BLR-ST
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SERVICE TAX CESTAT Cases

Service Tax - Exemption for renting of residential dwelling as Hostel – Appellant rents a multi-storey building to an educational foundation for use as a hostel for students and staff – Appellant initially pays service tax but later files a refund claim contending the rental income is exempt under Section 66D(m) of the Finance Act, 1994 - Whether the service of renting a residential building used as a hostel by an educational institution for student and staff accommodation qualifies as a service by way of renting of residential dwelling for use as residence and is thus exempt from service tax – HELD - The phrase 'residential dwelling for use as residence' in the section is activity-specific and not person-specific and does not require that the lessee itself must use the property as residence. The legislative intent behind the exemption is that a rented property used as residence should not attract tax, irrespective of the intermediary or the specific person using it. The ultimate use of the property in the present case remained unchanged as it was used for residence by students and staff of the educational institution - Granting a narrow interpretation by restricting the exemption only when the property is used by the lessee themselves would defeat the legislative intent, particularly as the tax burden would ultimately be passed on to the students. The TRU clarification that 'residential dwelling' means any residential accommodation, excluding temporary stay establishments such as hotels, motels, inns and guest houses, supports this interpretation. A hostel provides long-term residential accommodation and thus falls within the definition of residential dwelling - The appellant is not liable to pay service tax on the rental income received by renting the premises to the educational institution which was in turn used as hostels for the students – The appeal is allowed
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