APPLICABILITY OF GST ON PAYMENT OF ACTUAL WAGES THROUGH LABOUR CONTRACTOR

[GEE LIMITED]

QUERY REGARDING GST APPLICABILITY ON PAYMENT OF WAGES TO INDIVIDUAL LABOURERS

1. LABOUR CONTRACTOR PROVIDES WORKERS TO A FACTORY FOR MANUFACTURING OF GOODS.
2. HE IS ISSUING THE FOLLOWING MONTHLY BILLS TO THE FACTORY

BILL NO.1 (APRIL 2018)

	Total Mandays	Amount
REIMBURSEMENT OF WAGES (ACTUALS WITH EMPLOYEE WISE DETAILS)	1664	670844
EPF – EMPLOYER CONTRIBUTION (ACTUALS)		39969
ESI - EMPLOYER CONTRIBUTION (ACTUALS)		31866
TOTAL		742679

BILL NO.2 (APRIL 2018)

	Total Working Days	Rate	Amount
CHARGES FOR PROVIDING LABOUR	1636	20	32720

(Total Mandays - Paid Holidays = Total Working Days)

1. WHETHER THE CONTRACTOR IS LIABLE TO CHARGE GST ON BOTH THE BILLS OR WHETHER BILL NO.1 FOR REIMBURSEMENT OF ACTUAL WAGES, EPF AND ESI PAYMENTS WILL BE EXEMPTED FROM THE APPLICABILITY OF GST IN THE LIGHT OF SCHEDULE III (Section-7) –

ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to his employment.

1. WHETHER THE LABOUR CONTRACTOR CAN BE CONSIDERED A PURE AGENT OF THE COMPANY AND REIMBURSEMENT OF ACTUAL WAGES, EPF AND ESI CAN BE CONSIDERED AS EXEMPTED FROM GST.

[SARAVANAN RENGACHARY]

Pure agent concept will not work out for man power supply contract.

Need to pay GST on entire amount.

SAC: 998519

GST: 18%

CGST: 9.00%

SGST: 9.00%

Section Description: Section 8 : Business and Production Services

Heading: Support services

Service Description: Other employment & labour supply services n.e.c

[KASTURI SETHI]

GST is applicable on the whole amount. Examples of pure agent are : C & F Agent, CHA etc. You do not conform to the criteria laid down for exemption in Schedule III.

[Rajagopalan Ranganathan]

Sir,

Rule 33 of CGST Rules, 2017 states that-

Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.

Explanation.- For the purposes of this rule, the expression “pure agent” means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;

(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Illustration.- Corporate services firm A is engaged to handle the legal work pertaining to the incorporation of Company B. Other than its service fees, A also recovers from B, registration fee and approval fee for the name of the company paid to the Registrar of Companies. The fees charged by the Registrar of Companies for the registration and approval of the name are compulsorily levied on B. A is merely acting as a pure agent in the payment of those fees. Therefore, A’s recovery of such expenses is a disbursement and not part of the value of supply made by A to B.

In your case the supplier of manpower cannot be treated as 'pure agent' of you as per the definition given in the rule. Therefore the contractor is correct in charging gst on the entire amount charged by him towards supply of manpower.

[CASusheel Gupta]

Employer of the contractual labour shall be the contractor not company. Moreover,as per ESI and PF records the employer shall be contractor. Therefor the transaction cannot be covered under Schedule III.

Labour contractor cannot be treated as pure agent since as per rule 33(iii) "the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account". In your case the contractor is not taking any additional services from the labour instead this is the primary services which the contractor is providing and charging for this.

GST applicable on entire amount.

[KASTURI SETHI]

Beautifully explained by all experts. Appreciable for the quality. hard labour, precious time devoted, quickness and enthusiasm.

[Ganeshan Kalyani]

Yes, I am also of the opinion that pure agent concept will not work in this case. GST is applicable on the entire consideration amount. Thanks.

[YAGAY andSUN]

GST is applicable on the Gross value of the Bill so raised/issued.

[Amol Patil]

Sir in the same example service recipient should deduct TDS on full amount or only on his charges that is bill no 2 or he should deduct TDS on both the invoices? also under which category service recipient should deduct TDS 194J or 194C kindly clarify the same. Thanks in advance for your valuable guidance.

[Shankar Seelam]

If contractor raised bill for PF and ESI charges separately.whether GST is to be charged on that bill or not?

[KASTURI SETHI]

GST is chargeable.

AI Summary

GST on manpower supply: entire contract consideration taxable; reimbursements and statutory contributions not excluded as pure agent. The labour contractor is the supplier and employer for contractual workers; amounts billed for manpower supply-including separately stated wages and employer statutory contributions-constitute taxable consideration. The contractor does not satisfy pure agent criteria because the manpower provision is the primary service and the costs are not merely disbursements in addition to services supplied on the contractor's own account. Accordingly, reimbursements for wages, provident fund and ESI cannot be excluded from the value of supply and GST applies to the gross amount charged.