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Can Accommodation Services Be An Inter-state Supply.

22 Jan,2018


Accommodation services are under the purview of tax net since a long time It was a handsome source  of revenue under service tax law and the legacy is continuing in refined manner,even under GST  law.


                    Accommadation service is the service to provide a place to live or stay, it has been introduced in the service tax net since positive  list regime.The same is carried forward in the GST law also.Under GST law there is classification  of services  and  accordingly  accomdation services have been classified into the  various categories according to the practice  prevailing in the industry.

2. Classification

                   Accommodation  services have been classified under HSN/SAC 9963 wherein the further classification ia as under.


Service Tariff Code (HSN/SAC)

Description of Service



Room or unit accomdation  services provided by Hotels, INN,Guest House , club, etc



Camp Site Services



Recreational an vocational camp services



Room or unit accomdation  services for students in student residences



Room or unit accomdation  services provided by Hotels, Capms, Paying Guests, etc.



Other room or unit accomdation services not specified else where




3.Nature of supply

                 Accommodation services are generally provided at the premises used for providing  accomdation services. Since the GST is destination based consumption  tax, therefore, the place of supply of accomdation  services  is  the place where the property used forproviding such services is situated and the nature of supply is intra – State supply. However, before  reaching  at the conlusion we need to understand  the relevantprovisions of the GST law.

             The relevant provisions of law determaining  the nature of services  are coverd under the provisions of section 8 and setion 12 of the IGST Act,2017 read together.

             According to setion 8(2) of the IGST Act,2017  supply of  services where the  location  of the supplier and the place  of  supply of services are in the same  State  or the same Union  territory  shall be  treated as intra-state supply.

            According to setion 12(3)(b) of the IGST Act,2017, the place of supply of service by way of lodging accomdation by a hotel, inn, guest house ,home  stay , club or campsite, by whatever  name called  and including  a house boat or any other vessel shall be the location  at which the immovable property  or boat or vessel, as the case may be, is located or intended to be located.      

             Thus, on a combined reading  of the above two provision,one can easily figure out the nature of supply of accomdation services is intra-State supply.      

4.Whether accomdation services can be an inter-State  supply

             Although by referring  to the provisions cited above,  it can be  inferred that the  basic philosophy of implematon of destination   based consumption tax goes in line of taxing accommodation  services as intra-State  supply. Howeve, the following provisions of IGST Act,2017 are worth noting-

(a)Provisio to section 8(2) : The said provision reads as –“the  intra-State supply of services shall not include supply of services shall not include  supply of services to or by a Special Economic Zone developer or a Special Economic  Zone unit”.   

(b) Section 7(5)  (b) : Supply of goods or services or both to or by a Special Economic Zone developer  or a Special Economic Zone unit shall be treated to be a supply of goods or services or both in the  course of inter –State trade or commerce.

The direct implication of the above provisions on accomdation services is that the said services  if provided to any unit in SEZ shall not be considered  as intra-State supply. In other words, it shall be considered  as inter –State  supply.


 Hence, it can be fairly concluded that the accommodation services when provided to any unit in SEZ or by unit in SEZ evolves a concept divergent  to the basic intent of the GST  law of taxing  the services  on consumption  basis.Now  the question that flashes in the minds  is the need of such  a provision. The purpose  of introduction  of such provison can be  understood  with the provisions of section  16 of the IGST Act, 2017

         Implication  of sections  7(5), 8(2) and 16 of the IGST Act, 2017

        The implication of sections 16  and 8(2) can be understood i two parts. In one part the supplier of services  is outside the SEZ and in other part the supplier of services is in the SEZ. The impact on both the transaction shall be different.

(i) Supply to SEZ – Zero- rated supply

             Accordingly to section 16 of  the IGST Act, 2017, “zero-rated supply “ means any of the following supplies of goods or services or both namely :- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special Economic  Zone developer  or  a   Special  Economic Zone  unit.

            The provision stated in section 16 clearly mandates  that the accommodation services provided to SEZ developer  or to a unit in SEZ shall be treated as zero-rated supply.  To put it differently, the  same shall be considered  at par with export of services. Thus, such services shall fall under zero –rated supply under GST law  and shall be eligible for benefits attributed to zero rated supplies including refund of  taxes paid on the relevant , services,subject  to the other provisionsof GST law.

(ii) Supply by SEZ-Inter-State-supply

                            On a close reading of section 8(2)  and section 16 as mentioned above, it can be inferred that accomdation services provided by the unit  in SEZ to any person  outside SEZ shall be treated  as inter-State supply. Meaning thereby that the said services provided by SEZ shall be considered as inter-State  supply and IGST shall be considered  as inter –State supply and IGST shall be chargeable on the same.

(iii) Supply within  SEZ–Zero–rated supply        

                            Since in case of supply within SEZ the recipient shall always  be in SEZ, therefore, such  supply shall always fall within the meaning  of zero-rated supply.Hence,supplies within SEZ shall be eligible for benefits at par with the benefits available to zero –rated supply.

5. Conclusion 

          Accomdation services are generally taxed as intra-state supply, however the law  contains the relevant provisions for  treating the same as inter-state supply also. Thus, before reaching at any conclusion about the place of supply, it is essential to refer the lwa as a whole and relevancy of sections 7(5) and 8(2) cannot be undermined.

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