Manpower supply agency's GST advance ruling rejected as total consideration charged constitutes taxable value under Section 98(2)

AAR Tamil Nadu rejected an advance ruling application from a manpower supply agency seeking clarification on GST liability. The agency argued GST should apply only to service charges, not employee salaries routed through them. The AAR held that total consideration charged by the supplier constitutes taxable value under GST, as it is an indirect tax on supply of services, unlike income tax. The application was rejected as proceedings under investigation had commenced before filing, violating the first proviso to Section 98(2) of CGST Act.

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Issues Involved:
1. Admissibility of the Advance Ruling application in light of pending proceedings.
2. Determination of GST liability on service charges/commission versus salary/wages and related payments.

Summary:

Admissibility of the Advance Ruling Application:
The applicant, involved in the supply of labor/employees to principal employers, sought an advance ruling on whether GST is payable only on the service charges/commission received and not on the wages and other related payments made by the principal employer to the employees, which are routed through the applicant. However, it was noted that the applicant was already under investigation by the Headquarter Preventive Unit, Trichy, and a Show Cause Notice dated 30.06.2023 had been issued, involving issues of short payment of GST. According to the first proviso to Section 98(2) of the CGST Act, 2017, the Authority shall not admit an application where the question raised is already pending or decided in any proceedings under the Act. The Members confirmed that the applicant cannot file an Advance Ruling application on issues for which proceedings have already been initiated. Therefore, the application was rejected on grounds of inadmissibility.

Determination of GST Liability:
The applicant argued that GST should be payable only on the portion of service charges/commission received and not on the wages and other related payments made by the principal employer to the employees, citing several case laws. However, the Authority found that the definition of "consideration" under Section 2(31) and the provisions regarding the "Value of Taxable Supply" under Section 15 of the CGST Act, 2017, indicate that the entire payment received by the applicant, including salary/wages and related payments, constitutes consideration and is subject to GST. The Authority also noted that the cited case laws were not relevant to the determination of valuation of supplies under GST law. Furthermore, the labor/employees supplied by the applicant are considered employees of the applicant, not the principal employer, and thus the entire consideration charged by the supplier of labor is the taxable value for GST purposes.

Ruling:
The advance ruling application is rejected for the reasons discussed, primarily due to the pending proceedings against the applicant, which preclude the admission of the application under the first proviso to Section 98(2) of the CGST Act, 2017.

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