2023 (6) TMI 1049 - AAR - GST

APCOS manpower services to government qualify for GST exemption only for constitutional panchayat/municipality functions under Articles 243G/243W

AAR ruled that manpower services provided by APCOS to government departments are eligible for GST exemption only if they relate to functions entrusted to ... Exemption for pure services under Notification No.12/2017 - Central Tax (Rate) - scope of 'pure services' with reference to manpower supply - services provided by way of activity in relation to functions entrusted under Article 243G and Article 243W of the Constitution - eligibility test requiring service recipient to be Central/State/Local authority, Governmental Authority or Government Entity - value of supply under Section 15 of the CGST Act - case by case assessment of exemption based on the nature of the activity performedExemption for pure services under Notification No.12/2017 - Central Tax (Rate) - services provided by way of activity in relation to functions entrusted under Article 243G and Article 243W of the Constitution - eligibility test requiring service recipient to be Central/State/Local authority, Governmental Authority or Government Entity - case by case assessment of exemption based on the nature of the activity performed - Whether the manpower supply services rendered by APCOS are exempt from GST under Sr. 3 (and Sr. 3A) of Notification No.12/2017 as services in relation to functions entrusted to Panchayats (Art. 243G) or Municipalities (Art. 243W). - HELD THAT: - The Authority identified three cumulative conditions for claiming the exemption: (i) the supply must be a 'pure service' (i.e., not a works contract or composite supply involving goods); (ii) the recipient must be Central Government, State Government, Union territory, local authority, Governmental Authority or Government Entity; and (iii) the service must be provided by way of any activity in relation to a function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W. The Authority held that 'pure services' in general terms include manpower supply services, and that many of the recipient entities named by the applicant qualify as State Government bodies. However, the exemption is fact sensitive and available only where the particular manpower service is provided in relation to a function entrusted under Article 243G/243W. The applicant furnished limited work orders and documentary proof; consequently the Authority declined to grant a blanket ruling of exemption for all supplies made by APCOS and limited its conclusion to the principle that only those services which are in relation to functions entrusted under Article 243G or 243W are exempt; supplies not meeting that criterion are taxable.Only manpower services that are 'pure services' supplied to the specified government recipients and which are provided by way of any activity in relation to a function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W are exempt under the notification; other supplies are taxable at 18% GST.Value of supply under Section 15 of the CGST Act - inclusion in transaction value of amounts charged by supplier (remuneration, statutory contributions, welfare fund etc.) - What is the value of the supply of services rendered by APCOS for the purposes of GST valuation under Section 15 of the CGST Act? - HELD THAT: - Section 15 establishes transaction value as the price actually paid or payable where parties are unrelated and the price is sole consideration, and further specifies inclusions such as amounts the supplier is liable to pay, incidental expenses and amounts charged for anything done by the supplier in respect of the supply. The Authority examined the invoices submitted by APCOS which include remuneration, EPF, ESI and welfare fund. It found that the documentary evidence (including invoices and placement intimations) did not support the applicant's contention that only the welfare fund constituted consideration. Applying Section 15, the Authority concluded that the total amount collected and shown in the invoice constitutes the transaction value; therefore the full invoiced amount (remuneration plus statutory contributions and welfare fund as reflected in the invoice) is includible in the value of supply for levy of GST.The value of supply is the total amount collected as shown in the invoice; GST is leviable on the entire invoiced amount.Final Conclusion: Advance ruling: (i) Exemption under Notification No.12/2017 (and its amendment) applies only to pure services supplied to the specified government recipients when those services are provided in relation to functions entrusted to Panchayats (Art. 243G) or Municipalities (Art. 243W); other supplies remain taxable at 18%; (ii) valuation under Section 15 of the CGST Act requires inclusion of the total invoiced amount charged by APCOS, and GST is leviable on that entire amount. Issues Involved:1. Determination of the value of supply of services rendered by APCOS as per Section 15 of GST Act.2. Eligibility for GST exemption on supply of manpower services to various State Government departments under Notification Number 12/2017-Central Tax (Rate).3. Eligibility for GST exemption on supply of manpower services to various Government Authorities and Government Entities under Notification Number 12/2017-Central Tax (Rate) as amended by Notification 16/2021.Summary:Issue 1: Determination of Value of Supply of ServicesThe applicant, APCOS, contended that the value of their service is limited to the collection of a 1% welfare fund and not the total remuneration paid to the outsourced employees. However, the authority ruled that as per Section 15 of the GST Act, the total value of the supply includes the entire amount mentioned in the invoice, which encompasses remuneration, EPF, ESI, and welfare fund. Thus, GST is leviable on the total amount collected by APCOS.Issue 2: GST Exemption on Supply of Manpower Services to State Government DepartmentsThe authority examined whether the supply of manpower services to various State Government departments by APCOS qualifies for GST exemption under Notification Number 12/2017-Central Tax (Rate). It was determined that only those services provided in relation to any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution of India are exempted from GST. The rest of the services are taxable at 18% GST.Issue 3: GST Exemption on Supply of Manpower Services to Government Authorities and EntitiesSimilarly, the authority considered the eligibility for GST exemption under Notification 12/2017-Central Tax (Rate) as amended by Notification 16/2021. The ruling stated that only services provided by way of any activity in relation to functions entrusted to a Panchayat under Article 243G or a Municipality under Article 243W of the Constitution are exempted. Other services are subject to 18% GST.Ruling:1. The total amount collected by APCOS as mentioned in the invoice is the total value of the supply as per Section 15 of the GST Act.2. Only services provided in relation to functions entrusted to a Panchayat or Municipality under the relevant constitutional articles are exempt from GST; other services are taxable at 18%.3. The same exemption criteria apply to services provided to Government Authorities and Entities, with non-qualifying services being taxable at 18%.