Karinje Sripathi Bhat v. Commissioner of Central Excise (2026): renting residential premises for student accommodation is exempt under the negative list

A recurring question in the service-tax era was deceptively simple: when a landlord rents a residential building not to a family but to an institution — a company, a coaching centre, an educational foundation — which in turn houses people in it, is that taxable "renting of immovable property", or is it the exempt "renting of a residential dwelling for use as residence"? In Karinje Sripathi Bhat v. Commissioner of Central Excise, the Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal answered that the answer depends on how the premises are actually used, not on who the tenant is.

The facts in brief

Karinje Sripathi Bhat was registered under "Renting of Immovable Property Services". He had constructed a multi-storey building — five floors, comprising 129 rooms. That building was let out to Alvas Educational Foundation, an educational body, for the residential accommodation of students (and staff) for the period from 1 June 2014 to 30 May 2015.

The Department took the view that the rental income was taxable, treating the arrangement as a taxable supply of accommodation rather than the exempt renting of a residential dwelling. The appellant carried the dispute to CESTAT in Service Tax Appeal No. 21434 of 2016.

The question

The legal frame for the period in question was the "negative list" regime introduced in 2012, under which all services were taxable unless they fell within the negative list in Section 66D of the Finance Act 1994 or were otherwise exempted. Clause (m) of Section 66D placed outside the tax net the "services by way of renting of residential dwelling for use as residence."

The single question was whether Bhat's letting fell within that clause. The Department's argument was, in substance, that the building was rented to an institution — an educational foundation — and not to a resident, and that the arrangement amounted to the provision of hostel-type accommodation rather than the renting of a residence. The appellant's case was that Section 66D(m) exempts the renting of a residential dwelling for use as residence, that the clause says nothing requiring the tenant himself to live in the premises, and that the exemption attaches to the activity — residential use of a dwelling — and not to the identity of the lessee.

What the Tribunal held

R. Bhagya Devi, Technical Member, sitting singly, allowed the appeal and held that the appellant was not liable to pay service tax on the rental income.

The Tribunal accepted that the premises were a residential dwelling let out for use as residence, and that this brought the transaction within Section 66D(m) (read with the corresponding exemption under Notification No. 33/2012 dated 20 June 2012). The Bench treated the Department's attempt to recharacterise the arrangement as hostel services, rather than residential renting, as immaterial, given that the actual use of the premises was residential — students living in the building. In reaching that conclusion the Tribunal relied on the Karnataka High Court's decision in Taghar Vasudeva Ambrish, holding that the exemption applies where the ultimate use of the premises is residential, regardless of whether the immediate tenant is the person who resides there.

Analysis

The decision is best understood as an application of a principle that has hardened across both the service-tax and GST regimes: the residential-dwelling exemption is use-based, not tenant-based. The statutory language — "renting of residential dwelling for use as residence" — describes the character of the property and the character of its use. It does not, on its face, condition the exemption on the tenant being a natural person, or on the tenant being the same person who actually occupies the rooms.

That reading was the heart of the Karnataka High Court's decision in Taghar Vasudeva Ambrish, on which the Tribunal leaned. There, a residential building leased to an operator that ran it as long-stay hostel accommodation for students and working professionals was held to qualify for the parallel GST exemption, the High Court rejecting the Revenue's contention that the exemption applied only where the lessee personally resided in the property. (That reasoning was, in turn, affirmed by the Supreme Court in late 2025, giving the use-based reading the weight of the apex court — a useful pedigree for the principle the Tribunal applied here, even though Karinje Sripathi Bhat concerned the earlier service-tax provision rather than the GST notification.)

Applied to Bhat's facts, the principle does the work cleanly. A five-floor, 129-room building occupied by students is, in its actual use, a place of residence. The interposition of an educational foundation as the contracting tenant — rather than the students individually — changes the commercial structure of the lease but not the nature of the use. The "hostel versus residence" distinction the Department pressed collapses once one accepts that the relevant inquiry is what the premises are used for, not what label the accommodation arrangement is given.

The case is, of course, a single-member Tribunal decision on a fact-specific assessment, and it does not lay down new law so much as apply a settled reading of Section 66D(m). Its value lies in confirming, for the service-tax period, that an institutional tenant does not by itself take a residential letting outside the negative-list entry.

Why it matters

For owners of student-housing and similar long-stay residential buildings, and for the institutions that lease them, the decision confirms a planning point of real consequence: a residential building does not lose the benefit of Section 66D(m) merely because it is rented to a company, a society or an educational foundation rather than to the individual occupants. The exemption follows the residential use of the dwelling.

The narrower lesson for the Revenue is that recharacterising such a letting as "hostel services" will not, without more, defeat the exemption where the underlying use is residential. And for advisers handling legacy service-tax demands for the negative-list years (2012 onwards), Karinje Sripathi Bhat is a helpful Tribunal-level data point — anchored to the now Supreme-Court-affirmed reasoning in Taghar Vasudeva Ambrish — that the test is use, not tenant identity.

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Sources

• Taxscan, "Renting Residential Premises to Educational Foundation for Students Not Service Taxable: CESTAT" — taxscan.in
• Verdictum, "Supreme Court Upholds GST Exemption On Renting Residential Premises As Hostels To Students & Professionals (State of Karnataka v. Taghar Vasudeva Ambrish)" — verdictum.in