GST on Man Power Contract for University

[Souresh Kulshreshtha]

If a manpower contractor provides unskilled and skilled manpower to a University, when they generate bill, they will charge cost per manday which is inclusive of PF and ESI to the engaged manpowers. As well as, they will charge some amount towards service charge ( Service charge / Manpower ). GST charged on total amount of bill.

Here, salary will be transferred to concerned manpower, only service charge will be the income of the contractor.

Regarding PF & ESI also has to pay to government and shown to company to get full amount.

Request the forum on the following:

1. GST has to charge on total bill amount or their service charge as University cannot claim input credit

[KASTURI SETHI]

No deduction is allowed. Definition of consideration remains the same whether pre-GST era or post-GST regime. See the definition of 'consideration' under Section 2(31) of CGST Act, 2017 and Section 15 (2) (a),(b),(c) of the Act for valuation of taxable supply/transaction value.

[Mahadev R]

Acording to Section 15 (2) of CGST Act 2017, the value of supply shall include even incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services. Deduction cannot be claimed.

According to Rule 33 of CGST Rules,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.

If these conditions can be satisfied, then deduction can be claimed. If practically these conditions can be fulfilled, then proper documentation should also be ensured to substantiate.

[KASTURI SETHI]

In my view, the aspect of pure agent does not come into picture.

[Mahak Dhirawat]

Sir,

Main condition to avail ITC as per section 16(2) of CGST Act is that–

(a) He is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) He has received the goods or services or both.

(c) Subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and

(d) He has furnished the return under section 39:

Here, manpower contractor has issued invoice on total amount, including salary to workers, whereas salary is reimbursed by the company itself and contractor is been paid only his service charges.

This situation demands to interpret the agreement between the contractor and company.

1. If there is no direct agreement between the company and workers, then salary paid to worker is clearly reimbursement of expense by company on behalf of contractor. So this would be inclusive in transaction value from contactor’s point of view and company can take credit on the same if comply with aforesaid provision.

2. If there is an agreement between the company and workers, then there would be employer employee relationship and amount paid to worker will be term as salary. In this situation contractor should asked to revise there invoices, and only credit with respect to service charge can be taken.

This is my personal opinion and experts views are requested.

[Ganeshan Kalyani]

consideration includes all charges. PF & ESIC should be added while charging GST.

AI Summary

GST valuation on manpower contracts requires tax on full billed consideration unless pure agent conditions exclude reimbursements. Taxable value of a manpower supply ordinarily includes all amounts charged, including salary reimbursements and statutory contributions, unless the supplier qualifies and documents payments as a pure agent, in which case those amounts may be excluded; entitlement to input tax credit depends on possession of valid tax invoices, receipt of services, payment of tax, and filed returns, and the contractual characterisation of the worker engagement determines whether amounts are treated as reimbursed costs or as salary.