Manpower Agency cannot escape GST liability on Gross amount by showing Services Charges and Salary/Wages Separately

In re Prodip Nandi (GST AAR West Bengal)

Manpower Agency cannot escape GST liability on Gross amount by showing Services Charges and Salary/Wages Separately

The applicant thus engages contract labour towards supply of manpower services as requited by his clients (recipient of services). Rule 33 of the CGST/WBGST Rules, 2017 clearly speaks that one of the conditions that has to be satisfied for exclusion of expenditure or costs from the value of supply which has been incurred by a supplier as a pure agent if the services procured by the service provider, as a pure agent of the recipient of service, from the third party are in addition to the services which he provides on his own account. Admittedly, in the instant case, the applicant first enters into an agreement to his client for supplying of manpower services and subsequently engages different work-men (third party) at the place of business of his clients and thereby supplies manpower services only. We therefore find no other services other than manpower services are provided by the applicant to his client. We further find that by virtue of the “Employment Agreement‟ made between the applicant (service provider) and work-man (third party), the applicant, being the employer is liable to make payment to the third party (work-men/employee).

In the instant case, undisputedly the applicant is the person who is liable to pay salary/wages to the work-men employed by him under Employment Agreement to provide manpower services to his clients and just showing such amount in a separate manner in the invoice doesn’t shift his liability on the recipient of services and makes him qualify as a pure agent in terms of rule 33 of the CGST/WBGST Rules, 2017. The contention of the applicant that the recipient of services authorizes him to make payment of salary, wages and all allowances on behalf of him doesn’t hold water on the same ground that such amount is actually payable by the applicant himself. We accordingly fail to accept the argument that the applicant makes payment of such amount “on behalf of” his client i.e., the service recipient.

FULL TEXT OF THE ORDER OF AUTHORITY OF ADVANCE RULING, WEST BENGAL

1.1 At the outset, we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 (the CGST Act, for short) and the West Bengal Goods and Services Tax Act, 2017 (the WBGST Act, for short) have the same provisions in like matter except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in the WBGST Act. Further to the earlier, henceforth for the purposes of these proceedings, the expression ^„GST Act‟ would mean the CGST Act and the WBGST Act both.

1.2 The applicant is stated to be engaged in supplying manpower services to his clients on daily/ monthly basis for different jobs as required by his clients.

1.3 It is submitted by the applicant that the clients also authorize him to make payment of salary/wages on monthly basis to the manpower provided by him.

1.4 The applicant submits that he raises periodical invoices to his clients indicating salary/ wages payable against the manpower services supplied by him and also indicates the service charges payable to him at the agreed rates in the invoices in a separate manner.

1.5 The applicant submits further that upon receipt of payment from his clients, he disburses the salary/wages to the manpower provided by him.

1.6 The applicant has made this application under sub-section (1) of section 97 of the GST Act and the rules made there under raising following questions vide serial number 14 of the application in FORM GST ARA-01:

As per the Client Service Agreement, whether the applicant is acting as a pure agent as defined in Explanation to Rule 33 of the CGST Rules, 2017?

Whether the payment of salary/wages by the supplier can be excluded from the value of supply for the purpose of section 15 of the CGST Act, 2017?

1.7 The aforesaid question on which the advance ruling is sought for is found to be covered under clause (c) of sub-section (2) of section 97 of the GST Act.

1.8 The applicant states that the question raised in the application has neither been decided by nor is pending before any authority under any provision of the GST Act.

1.9 The officer concerned from the Revenue has raised no objection to the admission of the application.

1.10 The application is, therefore, admitted.

2. Submission of the Applicant

2.1 The authorised representative of the applicant has appeared for personal hearing proceedings and reiterated the submissions as narrated above.

2.2 The applicant submits that under the Client Service Agreement, he is acting as a pure agent for the purpose of payment of salary/ wages in the course of supply of manpower services to the client. The applicant neither intends to hold nor holds any title to the services supplied to his clients.

2.3 The applicant further submits that he does not use the services so procured for his interest and the manpower services are directly supplied to the client.

2.4 In course of personal hearing, the authorised representative of the applicant has furnished following documents in support of his argument: