2024 (2) TMI 170 - AAR - GST

Manpower services to local bodies taxable at 18% unless serving weaker sections under Article 243G

AAR Karnataka ruled on GST exemption for manpower services provided to local government bodies. The applicant's manpower services (FDA, SDA, typists, ... Exemption for pure services to local authority in relation to functions entrusted under Article 243G or 243W - Pure services excluding works contract service or other composite supplies involving any goods - Local authority includes Panchayat and Zilla Panchayat - Functions listed in Eleventh Schedule (welfare of weaker sections) as basis for exemption - Manpower supply not connected with functions entrusted to Panchayat is taxableExemption for pure services to local authority in relation to functions entrusted under Article 243G or 243W - Pure services excluding works contract service or other composite supplies involving any goods - Functions listed in Eleventh Schedule (welfare of weaker sections) as basis for exemption - Supply of certain manpower services to hostels and residential schools/colleges run by the Social Welfare Department is exempted under entry no. 3 of Notification No. 12/2017 as pure services. - HELD THAT: - The Authority examined entry no. 3 of Notification No. 12/2017 which exempts pure services provided to the Central/State Government or local authority by way of any activity in relation to a function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W. It found that hostels and residential schools run by the Social Welfare Department constitute activities provided to a State Government authority and that services such as cleaning staff, cook, assistant cook, teachers, staff nurse and watchman are rendered in relation to the welfare of weaker sections (entry 27 of the Eleventh Schedule) which is a function entrusted to Panchayats under Article 243G. As both conditions of the entry (pure service and activity in relation to a function entrusted to Panchayat/Municipality) are satisfied for these categories of manpower, the supply qualifies for exemption under the notification. [Paras 10, 11, 12]Supply of cleaning staff, cook, assistant cook, staff nurse, teachers and watchman to hostels and residential schools/colleges run by the Social Welfare Department is exempted.Pure services excluding works contract service or other composite supplies involving any goods - Local authority includes Panchayat and Zilla Panchayat - Manpower supply not connected with functions entrusted to Panchayat is taxable - Supply of manpower services such as Data Entry Operator, Drivers, 'D' Group staff, FDA, SDA and Typists to Zilla Panchayat/Taluk Panchayat/Social Welfare Department/Backward Classes Welfare Department does not qualify for the exemption and is taxable. - HELD THAT: - Although Zilla Panchayat and Taluk Panchayat fall within the definition of local authority, the Authority held that the mere fact of supplying manpower to these bodies does not automatically bring every category of manpower within the scope of entry no. 3. The services supplied (DEO, drivers, D Group, FDA, SDA, Typists) were not found to be by way of any activity in relation to a function entrusted to a Panchayat under Article 243G or to a Municipality under Article 243W. Consequently, these supplies do not satisfy the second condition of the notification and therefore do not attract the exemption. The Authority concluded that such supplies are liable to tax at the applicable rate. [Paras 10, 11, 12]Supply of Data Entry Operator, Drivers, 'D' Group staff, FDA, SDA and Typists to the specified government/local authorities is not exempt and attracts GST at 18% (CGST 9% and SGST/KGST 9%).Final Conclusion: The Authority ruled that manpower services of cleaning staff, cooks, assistant cooks, staff nurses, teachers and watchmen supplied to hostels and residential schools/colleges run by the Social Welfare Department are exempt under entry no. 3 of Notification No. 12/2017 as activities relating to functions entrusted to Panchayats/Municipalities, whereas other categories of manpower services (DEO, drivers, 'D' Group, FDA, SDA, Typists) supplied to Zilla/Taluk Panchayats or Departments do not meet the entry's conditions and are taxable at 18%. Issues Involved:1. Exemption of manpower services provided to Zilla Panchayat and Taluk Panchayat.2. Applicability of GST on different types of manpower services.Summary:Issue 1: Exemption of manpower services provided to Zilla Panchayat and Taluk PanchayatThe applicant, M/s. Manish Manpower Agency, sought an advance ruling on whether their supply of manpower services to Zilla Panchayat (Social Welfare Department) and Taluk Panchayat are exempt from GST under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate) as Pure Services.The Authority for Advance Rulings examined whether the manpower services provided by the applicant qualify as 'Pure Services' under the said notification. According to the notification, to claim exemption, the services must be:1. Pure Services (excluding works contract service or other composite supplies involving any goods) provided to the Central Government, State Government, Union territory, local authority, or a Governmental authority.2. By way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution.The Authority concluded that while Zilla Panchayat and Taluk Panchayat are covered under local authorities, the manpower services provided by the applicant to these entities do not qualify as activities in relation to any function entrusted to a Panchayat under Article 243G or a Municipality under Article 243W. Thus, these services are liable to tax at 18% (9% CGST and 9% SGST).Issue 2: Applicability of GST on different types of manpower servicesThe Authority further analyzed the specific types of manpower services provided by the applicant:- Exempted Services: The supply of manpower services such as cleaning staff, cook, assistant cook, teachers, staff nurse, and watchman to hostels and residential schools/colleges run by the Social Welfare Department is exempted from GST. These services are considered as activities in relation to functions entrusted to a Panchayat under Article 243G, specifically the welfare of weaker sections, including Scheduled Castes and Scheduled Tribes, as listed in the Eleventh Schedule of the Constitution. - Taxable Services: The supply of manpower services like Data Entry Operator, Drivers, 'D' Group staff, FDA, SDA, and Typists to Zilla Panchayat/Taluk Panchayat/Social Welfare Department/Backward Classes Welfare Department does not qualify for exemption. These services are not considered activities in relation to functions entrusted to a Panchayat under Article 243G or a Municipality under Article 243W. Consequently, these services attract GST at the rate of 18% (9% CGST and 9% SGST).Ruling:1. Manpower services like cleaning staff, cook, assistant cook, staff nurse, teachers, and watchman provided to hostels and residential schools/colleges run by the Social Welfare Department are exempt from GST.2. Manpower services like Data Entry Operator, Drivers, 'D' Group staff, FDA, SDA, and Typists provided to Zilla Panchayat/Taluk Panchayat/Social Welfare Department/Backward Classes Welfare Department are subject to GST at the rate of 18%.