Facts of the Case

The petitioner challenged Clause (A)(b) of Notification No. 04/2022-Central Tax (Rate) dated 13 July 2022 before the Delhi High Court. It was contended that the amendment withdrew the GST exemption for renting of residential accommodation where the tenant was a GST-registered person.

The petitioner, being a proprietor, argued that merely because she was registered under GST, the exemption could not be denied when the residential property was taken on rent for personal residential use and not for business purposes. It was alleged that the notification created an unreasonable classification and violated Article 14 of the Constitution.

Issues Involved

  1. Whether GST exemption on renting of residential dwelling can be denied merely because the tenant is registered under GST.
  2. Whether Notification No. 04/2022-Central Tax (Rate) violates Article 14 of the Constitution by creating an arbitrary classification.
  3. Whether a GST-registered proprietor occupying a residential house in his/her personal capacity is liable to GST.

Petitioner’s Arguments

  • The amended notification discriminated against GST-registered persons without any rational basis.
  • Registration under GST alone cannot determine taxability of residential rent.
  • The classification between registered and unregistered persons was arbitrary and violative of Article 14.
  • The residential dwelling was occupied purely for personal residence and not for any business activity.
  • Therefore, withdrawal of exemption solely due to GST registration was beyond the powers conferred under the GST Act.

Respondent’s Arguments

The Government submitted that:

  • GST was intended to be levied where residential dwelling is rented to businesses.
  • Exemption was always intended to continue where residential premises are used purely for personal residential purposes.
  • A proprietor renting a residential house in his/her individual capacity for personal residence, without accounting the rent in the business books and not using the premises in the course or furtherance of business, would continue to enjoy exemption from GST.
  • The Government further informed the Court that suitable clarification/amendment was under examination before the GST Council to remove ambiguity in Notification No. 04/2022-Central Tax (Rate).

Court Order / Findings

The Delhi High Court accepted the clarification given by the Government and held that:

  • A proprietor of a registered proprietorship firm is not liable to GST where:
    • the residential dwelling is rented in his/her personal capacity;
    • it is used exclusively as his/her own residence;
    • it is not used in the course or furtherance of business; and
    • the rent is paid on personal account and not through the proprietorship business.

The Court directed that all respondents shall remain bound by the said clarification and disposed of the writ petition accordingly.

Important Clarification

The judgment clarifies that GST registration alone does not make residential rent taxable.

GST exemption remains available where:

  • the residential property is taken on rent by a proprietor in his/her personal capacity;
  • it is used solely for residential purposes;
  • the premises are not used for business;
  • the rental expense is not claimed or accounted for in the business books of the proprietorship concern.

This clarification removes ambiguity arising from Notification No. 04/2022-Central Tax (Rate).

Related Case Law

  • Seema Gupta vs Union of India & Others (Delhi High Court)
  • Judicial interpretation relating to Notification No. 04/2022-Central Tax (Rate).
  • Cases concerning GST exemption on residential dwelling used for personal residence.
  • Decisions interpreting Article 14 in matters involving tax classification under GST.

Sections / Notification Involved

  • Notification No. 04/2022-Central Tax (Rate) dated 13.07.2022
  • Notification No. 12/2017-Central Tax (Rate)
  • Goods and Services Tax Act, 2017
  • Article 14 of the Constitution of India
  • GST on Renting of Residential Dwelling
  • Reverse Charge Mechanism (RCM) on Residential Rent (where applicable

Link to Download the Order- https://www.mytaxexpert.co.in/uploads/1784803745_1910.pdf

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