GST on manpower supply to government research centre includes lockdown wages paid directly to workers under CGST Act

The AAR held that services provided by the applicant-company to a government research centre constitute taxable manpower recruitment services under the CGST Act. Interim payments made by the recipient directly to outsourced workers during the COVID-19 lockdown form part of the consideration for such services. The fact that the entire amount was passed on as wages and that workers were treated as "on duty" under a government office memorandum does not alter the taxability. No specific GST exemption applies to these payments, and GST must be paid and regularised by the applicant on the full consideration received.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether payments described as wages/interim payments made by a service recipient to outsourced manpower during the COVID-19 lockdown period, under an existing manpower supply contract, constitute consideration for a taxable supply of manpower services liable to GST.

1.2 Whether any exemption from GST is available in respect of such wage/interim payments made for the lockdown period when the outsourced personnel did not physically perform duties but were treated as "on duty" under governmental directions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability under GST of wages/interim payments during lockdown under manpower supply contracts

Legal framework (as discussed)

2.1 The application was entertained under section 97(2)(e) of the CGST Act, relating to determination of liability to pay tax on services. The Court proceeded on the basis of the statutory scheme under sections 7 and 15 of the CGST Act, 2017 regarding "supply" and "value of taxable supply".

Interpretation and reasoning

2.2 The applicant is a registered supplier of manpower services under the CGST Act, engaged in providing ex-servicemen on contract to government departments and institutions. Under its contractual arrangement, the service recipient (here, a Central Government organization) pays a consolidated amount corresponding to wages, from which GST is ordinarily deducted and remitted by the applicant; the balance is paid to individual workers. The fact that the applicant does not retain any margin or commission and disburses the entire amount to workers does not alter the character of the transaction as a taxable supply of manpower services, as GST is chargeable on the total consideration received for such services, including recovered wages and related staff costs.

2.3 During the period 23.03.2020 to 31.05.2020, due to the nationwide COVID-19 lockdown, the contracted ex-servicemen did not physically perform duties at the premises of the service recipient. However, payments were sanctioned and released for that period pursuant to Office Memorandum F.No. 23(4)/E.Coord/2020/1 dated 23.03.2020 and the subsequent OM dated 20.05.2020 issued by the Ministry of Finance, Department of Expenditure. These OMs directed that contractual, casual and outsourced staff required to stay at home due to lockdown shall be treated as "on duty" and that necessary pay/wages would be paid accordingly, as a measure to avoid hardship, and extended this arrangement up to 31.05.2020.

2.4 The Court held that the Government OMs did not characterize the payments as ex gratia, grant, or compensation for non-performance, nor as damages for frustration or breach of contract. Instead, by a legal fiction, the period of absence was deemed "on duty"; the subsisting contract for manpower supply was treated as continuing; and payments were mandated as wages under that contract. Consequently, the amounts released by the service recipient for disbursal to the outsourced personnel represented contractual consideration for manpower supply services, not non-contractual financial assistance.

2.5 In applying sections 7 and 15 of the CGST Act, the Court reasoned that such consideration falls within the scope of "supply" of manpower services. The relationship remained that of a manpower service provider and service recipient under an ongoing contract; the legal fiction of "on duty" preserved the quid pro quo for the period, even though the staff were not physically at work. There was no basis to treat the amount as outside the scope of taxable supply (e.g., as a pure grant, ex gratia payment, or consideration for a non-supply event). The pure-agent concept was also held to be inapplicable, as the amounts formed part of the value of the taxable manpower service supplied under the contract.

Conclusions

2.6 The payments received from the service recipient during the lockdown period for the outsourced staff, treated as "on duty", constitute consideration for a taxable supply of manpower services under the CGST Act. Accordingly, GST is applicable on the full amount of such payments at the applicable rate for manpower recruitment/supply services. The omission to raise tax invoices or deduct/remit GST for that period does not alter taxability; the corresponding tax liability must be regularised by the service provider.

Issue 2: Availability of GST exemption on such wages/interim payments during lockdown

Legal framework (as discussed)

2.7 The Court examined whether any exemption under the extant exemption notification (including Notification No. 12/2017-CT (Rate)) or otherwise applied to manpower services of this nature during the lockdown, particularly in light of the Government OMs.

Interpretation and reasoning

2.8 The Court first distinguished between payments that may qualify as pure grants or ex gratia assistance (which may fall outside the ambit of "supply") and payments that are linked to an employment or outsourcing relationship as wages or wage advances (which ordinarily constitute consideration for services). It noted that if payments were in the nature of independent welfare support, unrelated to any ongoing contractual service, they might not attract GST. However, in this case, the Government OMs explicitly treated the period as "on duty" and mandated regular payment of pay/wages under the ongoing outsourcing/contractual engagement.

2.9 On this basis, the Court held that the interim payments were intrinsically tied to the manpower supply contract and could not be recharacterised as ex gratia financial assistance. They therefore remained consideration for manpower services. The Court further found that there is no specific exemption in the GST law or notifications that carves out or zero-rates such manpower services merely because they were rendered (or deemed to be rendered) during the COVID-19 lockdown or because the supplier is a welfare-oriented, non-commercial entity.

2.10 The Court expressly observed that, even considering the extraordinary circumstances of the pandemic, the statutory framework did not create any special GST relief or exemption for manpower services supplied during the lockdown. The welfare objective of the payments, as expressed in the OMs, did not override or modify the tax treatment prescribed under the CGST Act and notifications. In particular, no exemption under Notification No. 12/2017-CT (Rate) was found to be applicable to the manpower supply in question.

Conclusions

2.11 No GST exemption is available on the amounts received as wages/interim payments from the service recipient for the lockdown period, as those amounts are treated as consideration for manpower services deemed to be rendered "on duty" under the subsisting contract. The payments are fully taxable under the CGST Act at the applicable rate for manpower supply, and the service provider is required to discharge the corresponding GST liability.

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