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 panchayats under Article 243G or municipalities under Article 243W of the Constitution. The exemption eligibility must be determined case-by-case and cannot be generalized. Regarding valuation under Section 15 of GST Act, the court held that 18% GST is leviable on the entire amount including remuneration, EPF, ESI, and welfare fund, not just the welfare fund as claimed by the applicant.

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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 Services
The 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 Departments
The 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 Entities
Similarly, 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%.

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