2023 (6) TMI 1147 - AAR - GST

Manpower supplier eligible for input tax credit on food and services provided to contractual workers under Section 17(5)(b)

The AAR-TN ruled on a manpower supply agreement where the applicant supplied workers to a company. The Authority held that the applicant was eligible for ... Value of taxable supply - pure agent exclusion under Rule 33 - input tax credit under proviso to Section 17(5)(b) - manpower supply taxable at 18% - obligatory provision of canteen under Contract Labour (Regulation and Abolition) Act - inclusion of reimbursements in transaction value under Section 15Manpower supply taxable at 18% - value of taxable supply - inclusion of reimbursements in transaction value under Section 15 - Amount received by the applicant from the service recipient towards food supplied to workers is includible in the taxable value of the supply of manpower and taxable at 18%. - HELD THAT: - The agreements establish that the applicant is the employer of the contract workers and the core service provided to the recipient is supply of manpower. The Renewal Cum Amendment Agreement provides for payment to the applicant of expenses (food, rent, maintenance etc.) on a cost plus management fee basis; the applicant also bills a separate management/facilitation charge. Food supplied is consumed by the applicant's employees. The arrangement is not an independent supply of catering by the applicant to the recipient but forms part of consideration for the manpower service. Consequently, amounts reimbursed or recovered for food form part of the transaction value under Section 15 and attract the GST rate applicable to the principal supply (manpower) - 18%.Food reimbursements are includible in taxable value of manpower supply and taxable at 18%.Input tax credit under proviso to Section 17(5)(b) - obligatory provision of canteen under Contract Labour (Regulation and Abolition) Act - GST paid on food supplies is eligible for input tax credit under the proviso to Section 17(5)(b) because the applicant is obliged to provide canteen facilities to contract workers under the CLRA Act and rules. - HELD THAT: - The vendor invoices and facts show the applicant engages more than 100 contract workers, bringing the applicant within the statutory obligation to provide canteen facilities under Section 16 of the CLRA Act and applicable rules. The proviso to Section 17(5)(b) (as amended) permits ITC where an inward supply is used because it is obligatory for an employer to provide such supply to employees under law. On this basis the GST paid on food is not blocked and is eligible as input tax credit, subject to the usual conditions of Section 16.Input tax credit on food is available under the proviso to Section 17(5)(b) as the canteen provision is obligatory under the CLRA Act.Pure agent exclusion under Rule 33 - value of taxable supply - inclusion of reimbursements in transaction value under Section 15 - Electricity charges of the hostel premises reimbursed by the service recipient do not qualify for exclusion as a pure agent supply under Rule 33 and are includible in the taxable value of the manpower supply, taxable at 18%. - HELD THAT: - The agreements do not provide for unqualified reimbursement of actual electricity expenses; the applicant is entitled to a management fee on such expenses and reimbursement is subject to restrictions (proportionate consumption, possible recovery if disallowed for income-tax purposes). The electricity is consumed in hostel premises used by the applicant's employees. These features mean the conditions of Rule 33 for pure agent treatment are not satisfied (no mere pass-through of actual cost without entitlement to additional consideration). Therefore electricity reimbursements form part of consideration under Section 15 and attract GST at the rate applicable to the manpower service.Electricity reimbursements are not excludable as pure agent amounts and are taxable as part of the manpower supply at 18%.Pure agent exclusion under Rule 33 - value of taxable supply - inclusion of reimbursements in transaction value under Section 15 - Diesel charges for backup gensets reimbursed by the service recipient do not qualify for exclusion as pure agent supplies and are includible in the taxable value of the manpower supply, taxable at 18%. - HELD THAT: - Diesel expenses are incurred for generator use in hostel premises occupied by the applicant's employees and the contractual arrangements allow the applicant to recover such costs with management fee components; the evidentiary record does not support treatment as a mere pass-through. Accordingly, the Rule 33 conditions for excluding a pure agent's expenditure from value are not met and diesel reimbursements must be included in the transaction value under Section 15 and taxed at 18% along with the manpower supply.Diesel reimbursements are not excludable as pure agent amounts and are taxable as part of the manpower supply at 18%.Input tax credit under proviso to Section 17(5)(b) - value of taxable supply - Amounts received for rent, building maintenance, security and housekeeping for hostel premises used by the applicant's employees are includible in the taxable value of the manpower supply and the GST paid on these inputs is eligible as input tax credit, subject to Section 16 conditions. - HELD THAT: - Vendors issued invoices charging GST at 18% for rent, security, maintenance and housekeeping which are consumed in providing workforce accommodation. These amounts are recovered by the applicant from the recipient as part of consideration for the manpower supply (costs plus management). As such they form part of the transaction value under Section 15 and attract GST at the rate applicable to the manpower service. GST borne on these inputs qualifies for ITC because they are used in making the outward taxable supply of manpower, subject to the eligibility and conditions in Section 16.Rent, security, maintenance and housekeeping reimbursements are includible in manpower supply value; GST on these inputs is eligible for ITC subject to Section 16.Final Conclusion: The Authority rules that reimbursements and recoveries made by the applicant for food, electricity, diesel, rent, security and housekeeping in respect of hostel premises used by the applicant's employees are part of the consideration for supply of manpower and taxable at 18%; however GST paid on food is allowable as input tax credit under the proviso to Section 17(5)(b) because provision of canteen is obligatory under the CLRA Act, and GST on other input services is claimable as ITC subject to conditions of Section 16. Issues Involved:1. Output tax on food supply.2. Input tax on food supply.3. Electricity charges of hostel premises taken on rent.4. Diesel charges for backup gensets at hostel premises.5. Input tax on rent, security services, and housekeeping services.Detailed Analysis:1. Output Tax on Food Supply:The applicant sought affirmation on charging 5% GST on food supplies to clients. However, the ruling determined that the amount received for food supply to workers, who are employees of the applicant, should be included in the taxable value for the supply of manpower services. Consequently, GST should be paid at the rate of 18%, as applicable to the supply of manpower services.2. Input Tax on Food Supply:The applicant requested confirmation on availing 5% input tax credit (ITC) on food supplies received for making outward supplies of the same food. The ruling affirmed that GST paid on food supplies is eligible for ITC under the proviso to Section 17(5)(b), as it is obligatory for the applicant to provide canteen facilities to employees under Section 16 of the Contract Labour (Regulation and Abolition) Act, 1970.3. Electricity Charges of Hostel Premises Taken on Rent:The applicant sought affirmation on not charging GST for electricity charges reimbursed as actual TNEB bills, claiming to act as a pure agent. The ruling determined that electricity charges consumed in the hostel premises used by the applicant's employees do not qualify for exclusion from the value of supply as a pure agent. Therefore, the amount received should be included in the taxable value for the supply of manpower services, and GST should be paid at the rate of 18%.4. Diesel Charges for Backup Gensets at Hostel Premises:The applicant sought affirmation on not charging GST for diesel charges reimbursed as actual bills, claiming to act as a pure agent. The ruling determined that diesel charges used for gensets in the hostel premises used by the applicant's employees do not qualify for exclusion from the value of supply as a pure agent. Therefore, the amount received should be included in the taxable value for the supply of manpower services, and GST should be paid at the rate of 18%.5. Input Tax on Rent, Security Services, and Housekeeping Services:The applicant sought affirmation on availing ITC at 18% on rent, security services, and housekeeping services. The ruling determined that the amount received for rent, building maintenance, security service, and housekeeping for hostel premises used by the applicant's employees should be included in the taxable value for the supply of manpower services. Accordingly, GST should be paid at the rate of 18%, and the GST paid on these services is eligible for ITC, subject to eligibility and conditions stipulated under Section 16 of the Act.Conclusion:The ruling clarified that all amounts received by the applicant from the service recipient towards food supply, electricity charges, diesel charges, rent, building maintenance, security service, and housekeeping for hostel premises used by the applicant's employees should be included in the taxable value for the supply of manpower services and GST should be paid at the rate of 18%. Additionally, ITC on food supplies is eligible under the proviso to Section 17(5)(b), and ITC on rent, security services, and housekeeping services is also eligible, subject to conditions under Section 16 of the Act.