GST at 18% applies to entire manpower supply amount including salary reimbursements and service charges under Section 15

AAR UP ruled that GST at 18% applies to the entire amount received for manpower supply services, including reimbursement of basic salary, ESIC, EPF, and bonus along with service charges. The applicant was denied exemption under Notification No. 12/2017-CT (Rate) as MPMKVVCL and MPPKVVCL were determined not to be government entities lacking 90% government participation or legislative establishment. The authority held that invoices describing "supply of manpower (rural)" were insufficient to establish actual rural electricity distribution work qualifying for exemption, and Section 15 CGST Act requires inclusion of all amounts in taxable value.

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Issues Involved:
1. Applicability of GST at 18% on reimbursement of expenses (Basic Salary, ESIC, EPF, Bonus) along with service charge.
2. Determination if the services involving reimbursement of expenses for deployed manpower are NIL rated under GST.

Issue-wise Detailed Analysis:

1. Applicability of GST at 18% on reimbursement of expenses (Basic Salary, ESIC, EPF, Bonus) along with service charge:

The applicant, a Central Public Sector Enterprise, sought clarity on whether GST should be charged at 18% on the reimbursement of expenses, including Basic Salary, ESIC, EPF, and Bonus, in addition to the service charge for providing manpower services.

The applicant referenced Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which specifies that pure services provided to the government or local authority by way of any activity in relation to functions entrusted to a Panchayat under Article 243G or a Municipality under Article 243W are NIL rated. The applicant argued that their services fall under this exemption as they provide manpower for rural electrification, a function under Article 243G.

However, the Authority found that the applicant's service recipients, MP Paschim Kshetra Vidyut Vitran Co. Ltd (MPPKVVCL) and MP Madhya Kshetra Vidyut Vitran Co. Ltd (MPMKVVCL), do not qualify as government entities. The definition of a government entity requires 90% or more participation by way of equity or control by the government, which was not evidenced for these entities. Thus, the exemption under Notification No. 12/2017-CT (Rate) was deemed inapplicable.

Further, it was determined that the entire payment received by the applicant, including salary, wages, and reimbursement of EPF and ESI contributions, constitutes 'consideration' under Section 2(31) of the CGST Act, 2017. Therefore, GST is applicable on the total amount received for manpower supply services.

2. Determination if the services involving reimbursement of expenses for deployed manpower are NIL rated under GST:

The applicant contended that their services should be NIL rated as they provide manpower for activities falling under Article 243G of the Constitution, specifically rural electrification.

The Authority examined the applicability of the exemption under Notification No. 12/2017-CT (Rate) and concluded that the applicant's invoices did not sufficiently demonstrate that the manpower was exclusively used for rural electrification. Additionally, since the service recipients did not qualify as government entities, the exemption could not be applied.

The Authority referred to Section 15 of the CGST Act, 2017, which stipulates that the value of a supply includes all payments made for the supply of goods or services. This includes incidental expenses and contributions such as EPF and ESI. Hence, the entire amount received for manpower services is subject to GST at 18%.

Ruling:

1. GST is liable to be paid at 18% on the reimbursement of expenses (Basic Salary, ESIC, EPF, Bonus) along with the service charge.
2. The services involving reimbursement of expenses for deployed manpower are not NIL rated under GST.

This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.

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