Case Law Details
In re Andhra pradesh corporation for Outsourced services (GST AAR Andhra Pradesh)
Order from the Authority for Advance Ruling (AAR) in Andhra Pradesh regarding the applicability of GST (Goods and Services Tax) on the services provided by Andhra Pradesh Corporation for Outsourced Services (APCOS). Summary of the key points mentioned in the order:
1. APCOS is a not-for-profit company established under the Companies Act, 2013, to provide manpower supply services to various government departments, corporations, municipalities, and public institutions in Andhra Pradesh.
2. APCOS aims to remove private outsourcing agencies, ensure corruption-free outsourcing, provide reservation for specific categories, ensure timely payment of salaries, and provide statutory benefits to the outsourced manpower.
3. The applicant sought an advance ruling on the following questions:
a. The value of the supply of services rendered by APCOS as per Section 15 of the GST Act.
b. Whether the supply of manpower services to various state government departments is eligible for GST exemption under Notification Number 12/2017-Central Tax (Rate).
c. Whether the services of manpower supply to government authorities and entities are eligible for GST exemption under NNotification Number 12/2017-Central Tax (Rate) as amended by Notification 16/2021-Central Tax (Rate).
4. The AAR examined the relevant provisions of the GST Act and the notifications mentioned above. They concluded the following:
a. The value of the supply of services by APCOS includes the total amount collected, which consists of remuneration, EPF, ESI, and welfare fund. GST is applicable on the entire amount.
b. The exemption from GST under Notification Number 12/2017-Central Tax (Rate) is applicable only to services provided by APCOS that are directly related to functions entrusted to a Panchayat under Article 243G of the Constitution or to functions entrusted to a Municipality under Article 243W of the Constitution. Other services provided by APCOS are taxable at 18% GST.
c. The same exemption criteria mentioned in point (b) apply to services provided by APCOS to government authorities and entities.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING,ANDHRA PRADESH
ORDER
(Under sub-section (4) of Section 98 of Central Goods and Services Tax Act, 2017 and sub- section (4) of Section 98 of Andhra Pradesh Goods and Services Tax Act, 2017)
1. At the outset we would like to make it clear that the provisions of COST Act, 2017 and APGST Act, 2017 are in pari materia and have the same provisions in like matter and differ from each other only on a lew specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act would also mean reference to the corresponding similar provisions in (he APGST Act.
2. The present application has been filed u/s 97 of the Central Goods & Services Tax Act, 2017 and AP Goods & Services Tax Act, 2017 (hereinafter referred to CGST Act and APGST Act respectively) by M/s. Andhra Pradesh corporation for out sourced services (hereinafter referred to as applicant), registered under the AP Goods & Services Tax Act, 2017.
3. Brief facts of the case
3.1 M/s. Andhra pradesh corporation for Outsourced services (here in after referred as “APCOS”) is registered tax payer with GSTIN 37AASCA9533BIZH with effect from 15/07/2020 and having, its principal place of business located at NTR ADMINISTRTIVE BLOCK, 2nd FLOOR, P. N. Bus stand, vijaywada, krishna, Andhra pradesh, 520013, is providing manpower supply services (SAC 998519) to various government departments, corporations, municipalities and other public institution in the state of Andhra pradesh.
3.2 Andhra pradesh corporation for Outsourced services (APCOS) is established in accordance with G. O. Ms. No. 126 dated 18/10/2019, which is incorporated under section 8 of the companies Act, 2013, as a not-for-profit company, to achieve the following outcomes:
i Removal of private outsourcing agencies / middle men
ii. Corruption free outsourcing manpower placement for all Government departments / organizations.
iii. 50% reservation for SC’s / ST’s / BC’s & Minorities and 50% reservation for women.
iv. Timely and full payment of salaries into the bank account of outsourced manpower without leakages.
v. Assured statutory benefits like EPF & ESI etc.
The following are the key objectives of the corporation.
i. To engage required skilled, semi-skilled and unskilled manpower through systematic and transparent processes.
ii. To place the engaged manpower to the needy departments / organizations, as per their requirements.
iii To ensure that full benefits are extended to the engaged outsourced man power as per the rules and norms applicable and ensure that their statutory benefits such as Employee Provident Fund (EPF) and Employee State Insurance (ESI) are complied with.
iv. To act as a One-Stop-Shop for all the outsourcing requirements of the Govt of AP departments / organizations / Institutions.
The shareholding of APCOS shall be 100% with Government Of Andhra Pradesh in line with the vision and objectives of the outsourcing. The APCOS to be a non-protitable organization which initiates services for the outsourcing the manpower and the services in the State
4. Questions raised before the authority:
The applicant seeks advance ruling on the following:
1. Based on the facts submitted in fact A above, as per section 15 of GST Act, what is the value of the supply of the services rendered by APCOS.
2. Whether the supply of manpower services to various departments under state government provided by the applicant i.e., APCOS is eligible for exemption from GST, as per Sr. 3 of Notification Number 12/2017-Central Tax (Rate) New Delhi, dated 28th June,2017 as amended, being pure services as per the definition and the services rendered thereby being listed in article 243G and 24 3W of Constitution as functions pertaining to panchayat and municipality.
3. Whether the services of manpower supply services to various government authorities and Government entities provided by the applicant, ie., APCOS is eligible for exemption from GST, as provided under Sr. 3A of Notification Number 12/2017-Central Tax (Rate) New Delhi, dated 28th June,2017 as amended vide notification 16/2021 – Central tax (rate) dated 18-11-2021 being pure services as per the definition and the services rendered thereby being listed in article 243G and 243W of Constitution as functions pertaining to panchayat and municipality.
On Verification of basic information of the applicant, it is observed that the applicant is under Central jurisdiction i.e, Krishna Lanka Circle, Amaravathi Division. Accordingly, the application has been forwarded to the jurisdictional officer and a copy marked to the Central Tax authorities to offer their remarks as per Sec. 98(1) of CGST /APGST Act 2017.
In response, remarks are received from the central jurisdictional officer concerned stating that no proceedings lying pending with the issue, for which the advance ruling sought by the applicant.
5. Brief facts of the case
5.1 The applicant submits the following in support of their arguments :
Fact No. 1: As per the G.O Ms No. 126 and G.O.Ms.No136, APCOS is a single point solution for the manpower requirements of all the governmental organizations, departments, and corporations. The exact scope of operations of APCOS can be ascertained from various documents, and practices followed by various entities. Some of the salient features to be considered here arc as under.
1) APCOS is not an agency that recruits manpower for the government entities. The recruitments of manpower arc being made by the respective governmental departments, corporations etc. APCOS is not involved in any of the process of calling for the interviews, conducting interviews, shortlisting the eligible candidates etc.,
2) APCOS is not entering into any employment agreement with any of the employees. In fact, there is an explicit term in the letter intimating employment to the employees, that there is no employer and employee relationship between APCOS and the recruitee.
3) APCOS is not concerned with the attendance or the actual conduct of the recruilee’s on their job. The recruits are not subservient to the instruction of APCOS and APCOS is not involved in the day-to-day operations of any of the recruitee.
4) APCOS do not undertake to ensure that a certain number of employees are provided to the respective government departments, corporation and in case of absence or termination of any of the employees to replenish the same and to ensure that the work force is made available.
5) APCOS do not run the payroll – nor does receive and remit the salary amounts of the outsources employees. The remittance of the emoluments of the employment are made directly to the employees by the respective government entities based on their actual attendance and other terms of employment.
6) APCOS is only concerned with ensuring that all the statutory deductions and payments to the employees arc made properly. Respective departments are remitting the Statutory payments like PF, ESI, PT, GST etc., to APCOs and APCOS undertakes to ensure that all statutory deductions arc properly remitted to the respective authorities. APCOS is receiving the actual amount that shall be remitted to the authorities like PF, ESI, Pl’, GST etc., and is remitting exactly the same amounts.
7) APCOS is getting a mark-up of 1% of the amount of the salary of the employees. Based on the facts, Government Policy in the form of GO 126,136, and the agreements, it can be noted that the consideration of the supply of services made by APCOS is only the 1% markup. APCOS is not concerned about not receiving the basic portion of the salary of the outsourced employees, though APCOS is receiving the statutory payments in relation to the employees it cannot be considered as Income and expenditure of APCOS. It is only a pass through to APCOS, but is not a part of consideration of APCOS.
Fact. No. 2
The functions entrusted to a municipality under the Twelth Schedule to Article 243W of the Constitution and the list of Departments/ Authorities/ Local Bodies, etc., discharging those functions
6. Applicant’s Interpretation of Law:
1. APCOS is of the opinion that the supply of manpower supply services to the departments mentioned above is “pure service” as the aforesaid services are listed in 11th and 12th schedule of the constitution as a function pertaining to panchayats and municipality respectively and as per the definition, it qualifies as “pure services” and that their scope of services involve no supply of materials or any construction activities, Hence The same is eligible for GST exemption.
2. The applicant submits That, notification No. 12/2017- Central Tax (Rate) dated 28-06-2017 as amended stipulates at SI.No 3 of the notification that GST rate is NII. on “PURE SERVICES” which is extracted here as under :
In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), The Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central Tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said Tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:-
| S.No | Chapter, Section Heading, Group or Service Code (Tariff) | Description of Services | Rate (percent.) | Condition |
| 1 | *** | *** | *** | *** |
| 2 | *** | *** | *** | *** |
| 3 | Chapter99 | Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. | NII. | Nil. |
3. The applicant further submits that, notification no. 02/2018 Central Tax (rate) dated 25-01-2018, modified notification stated supra as under
In the said notification, in the table, –
(a) against serial number 3, in the entry in column (3), after the words “a Governmental Authority” the words ” or a Government Entity” shall be inserted;
(b) after serial number 3 and the entries relating thereto, the following serial number and entries shall be inserted, namely: –
| S.No | Chapter, Section Heading, Group or Service Code (Tariff) | Description of Services | Rate (percent.) | Condition |
| 3A | Chapler99 | Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent, of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental | Nil | Nil |
| authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. |
4. The applicant stated that, Vide Notification No. 32/2017- Central Tax (Rate) dated 13-10-2017, Government Authority and Government Entity were defined as under
“(zf) “Governmental Authority” means an authority or a board or any other body, –
(i) set up by an Act of Parliament or a State Legislature; or 3
(ii) established by any Government, with 90 per cent, or more participation by way of equity or control, to carry out any function entrusted to a Municipality under article 213 W of the Constitution or to a panchayat under article 243G of the Constitution.
(zfa) “Government Entity” means an authority or a board or any other body including a society, trust, corporation,
(i) set up by an Act of Parliament or Stale Legislature; or
(ii) established by any Government, with 90 per cent, or more participation by way of equity or control, to carry out a function entrusted by the Central Government, Stale Govermnent, Union Territory or a local authority.”.
5. The applicant further states that, vide Notification No. 16/2021 – Central Tax (Rate) dated 18-11-2021, GOI has made amended the rate notification 12/2017 (Central Rate) and the same can be read as
– In exercise of the powers conferred by sub-sections (3) and (4) of section 9, subsection (1) of section 11, sub-section (5) of section 15 and section 148 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby makes the following amendments further to amend the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No.12/2017- Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 691(E), dated the 28th June, 2017, namely:-
In the said notification, in the TABLE, –
(i) against serial number 3, in column (3), in the heading ” Description of Services”, the words ” or a Governmental authority or a Government Entity” shall be omitted;
(ii) against serial number 3A, in column (3), in the heading “Description of Services”, the words ” or a Governmental authority or a Government Entity” shall be omitted;
6. The applicant submits that, from the above statutory provisions, it is evident that to avail the benefit of the aforesaid exemption, three conditions should be satisfied, pine services (excluding works contract service or other composite supplies involving any goods) should be provided,
a. it should be provided to the Central government, Stale government or Union territory or local authority or a governmental authority and
b. thirdly it should be by way of any activity in relation to any function entrusted to a panchayat under article 243G of the Constitution or in relation Io any function entrusted to a municipality under article 243W of the Constitution.
7. The applicant submits that, supply of man power as discussed above provided by APCOS, not involving any supply of goods and should be treated as supply of pure services. The applicant further submits that, they are providing, the same to stale government and the said activity is in relation to function entrusted to a panchayat under article 243G of the Constitution or in relation to functions entrusted to a municipality under article 243W of the Constitution. In view of the above,the applicant is of the opinion that the supply of manpower services are exempt from (he liability of GST in terms of clause 3 of the Notification No 12/2017 supra, being in the nature of pure service covered under the article 243G and 243W of the Constitution being functions entrusted to the Municipality and Panchayat.
7. Personal Hearing:
The proceedings of Personal Hearing were conducted on 29.03.2023, for which the authorized representative, CA. Sivaprasad Annavarapu attended and reiterated the submissions already made.
8. Discussion and Findings:
We have examined the issues raised in the application in light of the facts and arguments submitted by the applicant. We have considered the submissions made by the applicant in their application for advance ruling. We have considered the issues involved from which advance ruling is sought by the applicant and the relevant facts along with arguments made by the applicant and also their submissions made during the time of the personal hearing.
Now we examine the issue, whether the services of manpower supply services to various Government authorities and Government entities provided by the applicant, ie., APCOS is eligible for exemption from GST, as per Notification Number 12/2017-Central Tax (Rate) New Delhi, dated 28th June, 2017 as amended vide notification 16/2021 -Central tax (rate) dated 18-11-2021 being pure services, as per the definition and the services rendered thereby being listed in article 243G and 243W of Constitution as functions pertaining to panchayat and municipality.
Now, we invite attention to the relevant portion of the aforementioned notification, which is extracted here as under:
Notification No. 12/2017- Central Tax (Rate) dated 28-06-2017 as amended
In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts the intra-State supply of services of description as specified in column (3) of the Table below from so much of the central tax leviable thereon under sub-section (1) of section 9 of the said Act, as is in excess of the said tax calculated at the rate as specified in the corresponding entry in column (4) of the said Table, unless specified otherwise, subject to the relevant conditions as specified in the corresponding entry in column (5) of the said Table, namely:-
| S.No | Chapter, Section Heading, Group or Service Code (Tariff) | Description of Services | Rate (percent.) | Condition |
| 1 | *** | *** | *** | *** |
| 2 | *** | *** | *** | *** |
| 3 | Chapter99 | Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution. | NII. | Nil. |
Therefore, the conditions to be fulfilled to be eligible for taking the benefit of the exemption from GST under the above notifications, is as under:
(i) Pure services are to be provided.
(ii) Service recipient should either be Central Government or State Government or Union territory or Local authority or Governmental authority or Government entity: and
(iii) Such services provided should be by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India.
The phrase “pure services” has not been defined under GST, the same can be construed in general terms as any supply which is either deemed as services under Schedule II of CGST Act or which are not covered under the definition of goods shall be categorized as pure services. In the instant case,the applicant is mainly involved in the supply of manpower services to various government departments as stated above, which can be categorized as pure services, thus satisfying the first condition.
The second condition to be verified is whether the entities mentioned at para 5.1 above are Central Government or Stale Government or Local authority. In this regard, definitions of the same as per the CGST Act, 2017 are as under:
(i) As per Section-2(53) of the CGST, Act, 2017, “Government” means the Central Government.
(ii) As per Section-2(53) of the CGST, Act, 2017, “Government” means the State Government.
(iii) “local authority” means ,-
(a) a “Panchayat” as defined in clause (d) of article 243 of the Constitution;
(b) a “Municipality” as defined in clause (e) of article 243P of the Constitution;
(c) a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund;
(d) a Cantonment Board as defined in section 3 of the Cantonments Act 2006;
(e) a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution;
(f) a Development Board constituted under article 371 and article 371J of the Constitution; or
(g) a Regional Council constituted under article 371A of the Constitution;
On examination of the details submitted by the applicant as well as taking into consideration the definitions mentioned above and the data available online, it can be concluded that most of the departments mentioned above can be classified as state government.
The third condition to be verified is whether the services provided to these entities mentioned above are services provided by way of any activity in relation to any function entrusted to a panchayat under Article 213G of the Constitution of India or in relation to any function entrusted to a municipality under Article 243W of the Constitution of India.
It is pertinent to note that the eligibility of exemption is dependent on case-to-case basis and cannot be generalized. The exemption is available only in relation to services provided by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India or not. The applicant had submitted only few work orders for verification and hence it is not feasible to pass am ruling on a generalised basis and hence it is being held at a principle level that any services provided in relation to any function entrusted to a panchayat under article 243G of Constitution of India or in relation to any function entrusted to a municipality under Article 243W of Constitution of India and the applicant be guided accordingly
Now we come to another part of the question sought by the applicant regarding the value of the supply of services rendered by AOCOS as per section 15 of GST Act. We invite attention to the relevant part of the section which is extracted here as under:
Value of taxable supply.
(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.
(2) The value of supply shall include,-
(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both;
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
Explanation.- For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
(3) The value of the supply shall not include any discount which is given,-
(a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
(b) after the supply has been effected, if,-
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.
(4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.
(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.
Explanation.- For the purposes of this Act,-
(a) persons shall be deemed to be “related persons” if,-
(i) such persons are officers or directors of one another’s businesses;
(ii) such persons are legally recognised partners in business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or holds twenty-five per cent. or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other, shall be deemed to be related.
The applicant had put forth the point of argument that the value of the service rendered by them is only limited to collection of ‘welfare fund’ and also contented that (he employees are not recruited by the applicant directly and they are concerned only with the payroll management . They have provided the way for the processing of bills and the way the monies are transferred directly into the employees account directly from the state CFMS account.
However, the following documentary evidences viz., the GO issued by government stating the objectives for which the applicant is formed by APCOS, the periodical invoices being raised by APCOS on various departments, the placement intimation letters being issued by the applicant stating that they are placing the staff in the concerned department are neither consistent with the contentions of the applicant nor conclusive and hence the contentions cannot be considered tenable.
The applicant has filed invoice issued to the service recipients with the following details:
(i) remuneration
(ii) EPF
(iii) ESI
(iv) welfare fund
As per section 15 of the GST act, the total value of the supply includes all the above and 18% GST is leviable on the entire amount (total of remuneration +EPE +ESI + welfare fund ) and not just welfare fund as contended by the applicant.
In view of the forgoing we rule as under:
RULING
(Under Section 98 of Central Goods and Services Tax Act, 2017 and the Andhra Pradesh Goods and Services Tax Act, 2017)
Question: Based on the facts submitted in Fact A above, As per section 15 of GST Act, what is the value of the supply of the services rendered by APCOS.
Answer : As per the provisions of the section 15 of the GST act, the total amount collected by APCOS as mentioned in the invoice is the total value of the supply.
Question: Whether the supply of manpower services to various Departments under State Government provided by the applicant i.e,, APCOS is eligible for exemption from GST, as per Sr. 3 of Notification Number 12/2017-Central Tax (Rate) New Delhi, dated 28th June,2017 as amended, being pure services as per the definition and the services rendered thereby being listed in article 243G and 243W of Constitution as functions pertaining to Panchayat and Municipality.
Answer : Only those services provided by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India are exempted as per notification staled supra ,rest are taxable al 18% GST.
Question: Whether the services of manpower supply services to various Government Authorities and Government Entities provided by the applicant, ie., APCOS is eligible for exemption from GST, as provided under Sr. 3A of Notification Number 12/2017-Central Tax (Rate) New Delhi, dated 28th June,2017 as amended vide notification 16/2021 – Central lax (rate) dated 18-11-2021 being pure services as per the definition and the services rendered thereby being listed in article 243G and 243W of Constitution as functions pertaining to Panchayat and Municipality.
Answer: Only those services provided by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India are exempted as per notification stated supra , rest are taxable at 18% GST.
