2021 (1) TMI 332 - AAR - GST

GST on Security Guard Wages & Establishment Charges: AAR Ruling

The case involved the issue of whether GST should be charged on establishment charges only after abatement of wages paid to security guards and the ... Consideration under GST - Valuation of taxable supply - Inclusion of wages and reimbursable expenses in transaction value - Eligibility for input tax credit - Classification under Heading 9985, Group 99852, Service code 998529 (security services)Consideration under GST - Valuation of taxable supply - Inclusion of wages and reimbursable expenses in transaction value - Classification under Heading 9985, Group 99852, Service code 998529 (security services) - GST is payable on the entire amount charged to clients (including wages paid to security guards and establishment charges) for security services supplied by the applicant. - HELD THAT: - The Authority examined the classification of the applicant's services under the GST rate notification and identified security services as falling under Heading 9985, Group 99852, Service code 998529 attracting 18% GST. The statutory definition of 'consideration' in Section 2(31) of the CGST Act, 2017 includes any payment made in respect of or for the inducement of the supply of services. Section 15 of the CGST Act, 2017 prescribes that the value of a supply shall be the transaction value (price actually paid or payable) and further specifies items to be included in the value of supply. On the facts, the applicant charged clients an aggregate amount which comprised wages payable to security guards and a separate element designated as establishment charges. The Authority held that such aggregate payment constitutes the consideration for the supply and therefore the entire amount is includible in the transaction value and subject to GST. The Authority rejected reliance on pre GST service tax jurisprudence invoked by the applicant because valuation and consideration are expressly governed by Sections 2(31) and 15 under the GST regime. [Paras 15, 16, 17, 19]The applicant must charge and pay GST at 18% on the full amount received from clients, inclusive of wages paid to security guards and establishment charges.Eligibility for input tax credit - Valuation of taxable supply - Consideration under GST - The applicant may claim input tax credit provided GST is charged/paid on the entire amount received from clients and other statutory conditions for claiming credit are satisfied. - HELD THAT: - Since the Authority concluded that the entire amount charged by the applicant constitutes consideration and is subject to GST, eligibility to claim input tax credit depends on compliance with the CGST Act and Rules. The Authority observed that if the applicant follows the correct method of charging and paying GST on the whole transaction value (wages plus establishment charges), they would be eligible to take input tax credit subject to fulfilment of conditions and provisions prescribed in the CGST Act, 2017 and CGST Rules, 2017. [Paras 18, 19]Input tax credit is available if GST is charged and paid on the entire amount received and the statutory conditions for credit are met.Final Conclusion: The Authority ruled that GST at 18% is payable on the aggregate amount charged to clients for security services (including wages paid to guards and establishment charges) and that input tax credit is available if GST is correctly charged/paid on that entire amount, subject to statutory conditions. Issues Involved:1. Whether GST @18% should be charged only on establishment charges after abatement of wages paid to security guards.2. Eligibility to take GST credit if the above method of charging GST is followed.Issue-wise Detailed Analysis:Issue 1: Charging GST @18% on Establishment Charges OnlyThe applicant, M/s. Gujarat Industrial Security Force Society (GISFS), provides security services and charges their clients based on the Minimum Wages Act plus 12% establishment charges. They have been charging GST @18% on the total amount of Rs. 112 (Rs. 100 wages + Rs. 12 establishment charges). GISFS contends that based on various judgments, GST should be charged only on the establishment charges of Rs. 12 and not on the entire amount of Rs. 112.The Authority for Advance Ruling (AAR) examined the relevant provisions of the Central Goods and Services Tax (CGST) Act, 2017, and the Gujarat Goods and Services Tax (GGST) Act, 2017. The AAR referred to Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, which classifies security services under Heading 9985, Group 99852, and Service code 998529, with a GST rate of 18%.The AAR reviewed various judgments cited by the applicant, which pertained to the pre-GST era under the Finance Act, 1994. These judgments discussed the aspect of valuation and abatement of reimbursable expenses. However, the AAR concluded that these cases do not hold relevance in the GST era because the CGST Act, 2017, has clear provisions regarding the valuation of supply. Section 2(31) defines 'consideration,' and Section 15 elaborates on the items to be included in the value of supply.The AAR determined that 'consideration' includes any payment made for the supply of goods or services, and GST should be charged on the entire amount received from clients, including wages and establishment charges. Therefore, GISFS must charge/pay GST @18% on the entire amount of Rs. 112.Issue 2: Eligibility to Take GST CreditThe second issue pertains to the eligibility of GISFS to take GST credit if they charge GST only on the establishment charges. The AAR clarified that GISFS cannot follow the method of charging GST only on the establishment charges as it would be contrary to Section 15 of the CGST Act, 2017.However, if GISFS follows the correct procedure of charging GST on the entire amount received from clients (including wages and establishment charges), they would be eligible to take GST credit. This eligibility is subject to the fulfillment of conditions and provisions outlined in the relevant sections and rules of the CGST Act, 2017, and the CGST Rules, 2017.Ruling:1. GISFS must charge/pay GST @18% on the entire amount received from their clients, which includes wages and establishment charges.2. GISFS is eligible to take GST credit if they charge/pay GST on the entire amount received from clients, subject to the fulfillment of conditions/provisions in the CGST Act, 2017, and CGST Rules, 2017.