to decide the applicable rate of GST for service of supply of labour we have to determine the classification of the Service provided by the applicant. Regarding the classification of service Annexure to the Notification No. 11/2017-CT (Rate) dated 28.06.2017 have been referred. The Annexure attached to the Notification No. 11/2017-CT (Rate) dated 28.06.2017 has defined the Service Accounting Code for each type of services, details of the following services, which are relevant to the transaction of the applicant is as under:
| 400 | Heading 9985 | Support services | |
| 401 | Group 99851 | Employment services including personnel search, referral service and labour supply service | |
| 402 | 998511 | Executive or retained personnel search services | |
| 403 | 998512 | Permanent placement services, other than executive search services | |
| 404 | 998513 | Contract staffing services | |
| 405 | 998514 | Temporary staffing services | |
| 406 | 998515 | Long-term staffing (pay rolling) services | |
| 407 | 998516 | Temporary staffing-to-permanent placement services | |
| 408 | 998517 | Co-employment staffing services | |
| 409 | 998519 | Other employment and labour supply services nowhere else classified |
10.1 From the above, it is seen that the nature of service provided by the application is covered under the Service Accounting Code 998519 – Other employment and labour supply services nowhere else classified.
| 23 | Heading 9985 (Support services) | (i) Supply of tour operators services.
Explanation.- “tour operator” means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours. |
2.5 | 1. Provided that credit of input tax charged on goods and services used in supplying the service has not been taken [Please refer to Explanation no. (iv)]
2. The bill issued for supply of this service indicates that it is inclusive of charges of accommodation and transportation required for such a tour and the amount charged in the bill is the gross amount charged for such a tour including the charges of accommodation and transportation required for such a tour. |
| (ii) Support services other than (i) above | 9 | – |
The Service provided by the applicant merit classification under SAC 998519 and applicable rate of GST would be covered under entry No. 23 of Notification No. 11/2017-CT (Rate) dated 28.06.2017. Accordingly, applicable rate of GST for the Service provided by the applicant would be 18% {CGST-9% +SGST-9%} in terms of Sr. No. 23 of Notification No. 11/2017-CT (Rate) dated 28.06.2017.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING, GUJARAT
BRIEF FACTS OF THE CASE:
M/s. BhadreshKumar Rameshchandra Dave, Plot No. 2363/1a, Rhumba Sai Baba Park, Ring Road, Subhash Nagar, Bhavnagar is a proprietorship company having a GSTIN: 24AAKHB2992Q1ZP, filed an application for Advance Ruling under Section 97 of CGST Act, 2017 and Section 97 of the GGST Act, 2017 in FORM GST ARA-01 discharging the fee of Rs. 5,000/- each under the CGST Act and the SGST Act.
2. M/s. BhadreshKumar Rameshchandra Dave, an applicant is a service provider and intends to work as a Pure Agent for a company which will be the recipient of the labour supply services satisfying below listed conditions:
(i) the applicant intend to work as a pure agent of the company that will be the recipient of the labour supply service, they will make the payment to the third parties (labour) for the labour supply service procured, as the contract for labour service made by the third parties is between third party and the company that will receive the service;
(ii) the company that will receive labour supply service uses the services so procured by the applicant in their capacity as a pure agent of the company receiving the supply;
(iii) the company receiving labour supply service is liable to make payment to third parties (labour).
(iv) the company authorizes the applicant (pure agent) to make payment on their behalf.
(v) the company which is recipient of supply knows that the labour services for which payment has been made by the applicant shall be provided by the third parties (labour);
(vi) the payment made by the applicant on behalf of the Company which is recipient of labour supply services has been separately indicated in the invoice issued by the applicant to the recipient of the service; applicant will issue two separate invoices as under :
a) Invoice No.1: with description “Bill for reimbursement of Salary payment made on behalf of company to the third parties (labour) for the month as per attached list”.
b) Invoice No. 2 : with description “Bill for service and consultation for the month”
(vii) the applicant recover from the company which is recipient of labor supply service only such amount that has been paid by them to the third parties (labour); and
(viii) the labour service procured by applicant from the third parties as a pure agent of the company which is recipient of labor supply service are in addition to the services applicant provide on their own account.
3. Accordingly, an applicant sought advance ruling on the following question :
What will be the applicable GST rate for the activity carried out by the applicant?.
Personal Hearing
4. The authorized representative of the company appeared on behalf of the company and reiterated the submission already made in the application filed with the Authority of Advance Ruling. We the member requested the authorised signatory to submit the copy of contract and Invoice, if any issued in respect of the service provided to the applicant.
Findings and Discussion
5. We have considered the submissions made by the Applicant in their application for advance ruling as well as the additional submissions made by authorised signatory, during the personal hearing proceedings on 24-09-2020 before this authority. We also considered the issue involved, on which advance ruling is sought by the applicant, relevant facts & the applicant’s interpretation of law.
6. At the outset, we would like to state that the provisions of both the CGST Act and the GGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the GGST Act.
7. We have gone through the facts of the case and all the relevant documents submitted by the party. We have gone through the submissions made by the applicant and it is observed that applicant intend to work as a pure agent of the company that will be the recipient of the labor supply service; that they will make payment to the third party (labour) for the labor supply service procured by the company as such the contract for labor service is between third party and the company that will receive the labor service; they will act as a pure agent of the company; the company authorizes applicant to as a pure agent; the company receiving the labor supply service is liable to make payment to the third parties (labor); that the payment will be made by the applicant on behalf of the company to the third party i.e. labor and the same amount has been indicated separately in the Invoice issued by them to the company; that they will issue two types of Invoice 1. Bill for reimbursement of salary payment made to the labour on behalf of the company 2. Bill for service and consultation fees for the month. Accordingly, the moot question before us is to decide whether the applicant covers within the ambit of conditions defined to be a pure agent under CGST Act/ Rules for providing service to the company or otherwise.
7. To answer the said question we need to refer the Section 15 of CGST Act, 2017, vide which value of taxable supply is defined and Rule 33 of CGST Rules, 2017 regarding value of services in case of supply of service as a pure agent
Section 15 of CGST Act, 2017 is read as under:
Value of taxable supply
15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply
As per Rule 33 of CGST Rules, 2017 the expenditure or cost incurred by a supplier, as a pure agent of the recipient of the supply shall be excluded from the value of supply. However, such exclusion of expenditure incurred as a pure agent is possible where the conditions are required to be considered as a pure agent and further conditions stipulated in the rules are satisfied by the supplier. The relevant rule is reproduced as below
Rule 33 of the Central Goods and Services Tax Rules states as under:
“33. Value of supply of services in case of pure agent. –
Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely :-
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorization by such recipient;
(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
(iii) the supplier procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
Explanation. – For the purposes of this rule, the expression “pure agent” means a person who
(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;
(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;
(c) does not use for his own interest such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. “
7.1 In view of the above, a pure agent is one who, whilst making a supply to the recipient, also receives and incurs expenditure on some other supply on behalf of the recipient and claims reimbursement (as actual, without adding it to the value of his own supply) for such supplies from the recipient of the main supply. While the relationship between them (provider of service and recipient of service) in respect of the main service is on a principal to principal basis, the relationship between them in respect of other ancillary services is that of a pure agent. The service provider as pure agent can be excluded from the value of taxable service subject to the condition that all the conditions specified in the Rule are satisfied.
Further, “pure agent” has been defined to mean a person who :
(a) Enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service.
(b) Neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service.
(c) Does not use such goods or services so procured, and
(d) Receives only the actual amount incurred to procure such goods or services.
7.2 Only when all the four criteria as specified above are satisfied, a person can be considered as a pure agent. To decide whether the applicant satisfied all the four conditions we refer the agreement and invoice submitted by the applicant. The relevant extract of the agreement are as under:
The heading of the contract is “AGREEMNT FOR LABOUR CONTRACT“
Whereas the contractor being desirous of performing the work of supplying labour to company have submitted the offer and whereas the contractor agreed to perform the duties described the following terms and conditions, now this deed witnessed the parties hereunder do mutually agrees as follows:-
DESCRIPTION OF WORK
1. The contractor shall supply labour in each shift (All the three) as per the requirement of the organization.
2. The contractor shall be paid at 17000.00 on the total bill raised by him for each worker supplied by him per day.
3. The labour employed by the contractor shall follow the safety norms strictly including prohibiting smoking inside the premises.
9. SUBLETTING FUNCTION: The contractor shall not sublet or transfer the whole or part of the functions under this agreement to any other person, firm or company without the previous approval of the company.
10. RESPONSIBILITIES UNDER VARIOUS ACTS: The contractor shall engage all persons employed by him in all respects and assume responsibilities under the Factories Act, 1948. The workman’s Compensation Act, 1923 Contract Labour (Regulation and Abolition) Act 1970, Employees State Insurance Act and Employees Provident Funds Act, 1952 and other similar enactment in respect of such personnel. The contractor shall indemnify the company against all claims. In the event of the company having to pay any amount due to non-observation of the various provisions under the Act, the contractor shall be liable to reimburse the aforesaid amount to the company.
7.3 On going through the said terms and conditions of the agreement, it is observed that the applicant has entered into an agreement with the company for supply of labour and in the clause “Description of Work” of the agreement, it is clearly mentioned that, contractor shall supply labour in each shift (All the three) as per the requirement of the organization; contractor shall be paid at 17000.00 on the total bill raised by him for each worker supplied by him per day and the labour employed by the contractor shall follow the safety norms strictly including prohibiting smoking inside the premises. These terms and conditions clearly indicate that the applicant is engaged in the service of supply of labour. The agreement also provides that the contractor engages all persons in all respects and assumes responsibilities under various Acts, viz. the Factories Act, 1948, The workman’s Compensation Act, 1923, Contract Labour (Regulation and Abolition) Act 1970, Employees State Insurance Act and Employees Provident Funds Act, 1952 etc. Further, it also provides that the contractor has indemnified the recipient against all claims and that in the event of the recipient having to pay any amount due to non-observation of the various provisions under the Act, the contractor shall be liable to reimburse the aforesaid amount to the company.
8 Further, we refer the sample copies of the Invoices submitted by the applicant and it is noticed that they have mentioned the particular as “Charges for manpower supply during the month’ and charged GST @18% {CGST- 9% + SGST-9%}.
9. In view of the above discussion, it is observed that the applicant does not satisfy any one of the conditions mentioned in the Rule 33 of CGST Rules, 2017 which are required for acting as a “pure agent”. Hence we conclude that the applicant cannot be categorized as a “pure agent” as such he is engaged in the supply of labour service. The supply of labour service is taxable under GST Act/Rules, therefore applicant is liable to pay Goods and Service Tax on the supply of said service provided.
10. Now, to decide the applicable rate of GST for service of supply of labour we have to determine the classification of the Service provided by the applicant. Regarding the classification of service Annexure to the Notification No. 11/2017-CT (Rate) dated 28.06.2017 have been referred. The Annexure attached to the Notification No. 11/2017-CT (Rate) dated 28.06.2017 has defined the Service Accounting Code for each type of services, details of the following services, which are relevant to the transaction of the applicant is as under:
| 400 | Heading 9985 | Support services | |
| 401 | Group 99851 | Employment services including personnel search, referral service and labour supply service | |
| 402 | 998511 | Executive or retained personnel search services | |
| 403 | 998512 | Permanent placement services, other than executive search services | |
| 404 | 998513 | Contract staffing services | |
| 405 | 998514 | Temporary staffing services | |
| 406 | 998515 | Long-term staffing (pay rolling) services | |
| 407 | 998516 | Temporary staffing-to-permanent placement services | |
| 408 | 998517 | Co-employment staffing services | |
| 409 | 998519 | Other employment and labour supply services nowhere else classified |
10.1 From the above, it is seen that the nature of service provided by the application is covered under the Service Accounting Code 998519 – Other employment and labour supply services nowhere else classified.
11. Regarding the rate of tax applicable on the above supply Notification No. 11/2017-CT (Rate) dated 28.06.2017 is referred and found that the entries related to SAC 9985 are as under:
| 23 | Heading 9985 (Support services) | (i) Supply of tour operators services.
Explanation.- “tour operator” means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours. |
2.5 | 1. Provided that credit of input tax charged on goods and services used in supplying the service has not been taken [Please refer to Explanation no. (iv)]
2. The bill issued for supply of this service indicates that it is inclusive of charges of accommodation and transportation required for such a tour and the amount charged in the bill is the gross amount charged for such a tour including the charges of accommodation and transportation required for such a tour. |
| (ii) Support services other than (i) above | 9 | – |
The Service provided by the applicant merit classification under SAC 998519 and applicable rate of GST would be covered under entry No. 23 of Notification No. 11/2017-CT (Rate) dated 28.06.2017. Accordingly, applicable rate of GST for the Service provided by the applicant would be 18% {CGST-9% +SGST-9%} in terms of Sr. No. 23 of Notification No. 11/2017-CT (Rate) dated 28.06.2017.
12. In view of the above discussion we pass the following Ruling:
RULING
Question: What will be the applicable GST rate for the activity carried out by the applicant?
Answer : In view of the above discussion GST rate for the activity carried out by the applicant i.e. supply of labour would be 18% {CGST-9% +SGST-9%} in terms of Sr. No. 23 of Notification No. 11/2017-CT (Rate) dated 28.06.2017.