2021 (1) TMI 332 - AAR - GST

Levy of GST - whether the stand to charge the GST@18% only on establishment charges (i.e. after abatement of wages etc. paid to guards) and not on whole amount (which includes the wages etc. paid to the Security Guards as well as the amount collected from their client towards establishment charges for the administration of their office) is correct or otherwise? - availability of GST Credit - benefit of N/N. 11/2017-Central Tax(Rate) dated 28.06.2017. HELD THAT - The Security services provided by the applicant falls under Heading 9985, Group 99852 and Service code(Tariff) 998529, wherein GST payable is 18%. Section 15(1) clearly stipulates that the value of supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. Further, sub-section (2) of Section 15 elaborates in detail, the items that are required to be included in the value of supply, whereas sub-section(3) of Section 15 specifically elaborates the items that are not to be included in the value of supply. Thus, it is very much apparent that all the aspects of valuation of supply have been covered in the CGST Act itself - taking into the view the definition of consideration and the aspect of valuation of supply as discussed above, it is apparent that the applicant is left with no option but to charge/pay GST on the entire amount received by them from their clients. It can be concluded that the applicant has to charge/pay GST @ 18% on the entire amount received by them from their clients, which includes the salary/wages etc. to be paid to the Security Guards as well as the amount received from their clients as establishment charges to run their administration office and to cover their administration cost like administration staff salary, stationery, electricity of admin office etc. Whether the applicant can take credit of GST, if they follow the method of charging/paying GST only on the amount received by them as establishment charges from their clients? - HELD THAT - It is amply clear that the applicant cannot follow the method of charging/paying GST only on the amount received by them towards establishment charges from their client, since it would be contrary to the provisions of Section 15 of the CGST Act, 2017. In view of the above, we find that the applicant would be eligible to take the GST credit if they follow the procedure of charging/paying GST on the entire amount received by them from their clients, which includes the salary/wages etc./ to be paid to the Security Guards as well as the amount received from their clients as establishment charges to run their administration office and to cover their administration cost like administration staff salary, stationery, electricity of admin office etc., subject to the fulfilment of the conditions/provisions envisaged in the relevant sections and rules of the CGST Act, 2017 and the CGST Rules, 2017 respectively.

Issues Involved:
1. Whether GST @18% should be charged only on establishment charges after abatement of wages paid to security guards.
2. Eligibility to take GST credit if the above method of charging GST is followed.

Issue-wise Detailed Analysis:

Issue 1: Charging GST @18% on Establishment Charges Only
The applicant, M/s. Gujarat Industrial Security Force Society (GISFS), provides security services and charges their clients based on the Minimum Wages Act plus 12% establishment charges. They have been charging GST @18% on the total amount of ?112 (?100 wages + ?12 establishment charges). GISFS contends that based on various judgments, GST should be charged only on the establishment charges of ?12 and not on the entire amount of ?112.

The Authority for Advance Ruling (AAR) examined the relevant provisions of the Central Goods and Services Tax (CGST) Act, 2017, and the Gujarat Goods and Services Tax (GGST) Act, 2017. The AAR referred to Notification No.11/2017-Central Tax (Rate) dated 28.06.2017, which classifies security services under Heading 9985, Group 99852, and Service code 998529, with a GST rate of 18%.

The AAR reviewed various judgments cited by the applicant, which pertained to the pre-GST era under the Finance Act, 1994. These judgments discussed the aspect of valuation and abatement of reimbursable expenses. However, the AAR concluded that these cases do not hold relevance in the GST era because the CGST Act, 2017, has clear provisions regarding the valuation of supply. Section 2(31) defines 'consideration,' and Section 15 elaborates on the items to be included in the value of supply.

The AAR determined that 'consideration' includes any payment made for the supply of goods or services, and GST should be charged on the entire amount received from clients, including wages and establishment charges. Therefore, GISFS must charge/pay GST @18% on the entire amount of ?112.

Issue 2: Eligibility to Take GST Credit
The second issue pertains to the eligibility of GISFS to take GST credit if they charge GST only on the establishment charges. The AAR clarified that GISFS cannot follow the method of charging GST only on the establishment charges as it would be contrary to Section 15 of the CGST Act, 2017.

However, if GISFS follows the correct procedure of charging GST on the entire amount received from clients (including wages and establishment charges), they would be eligible to take GST credit. This eligibility is subject to the fulfillment of conditions and provisions outlined in the relevant sections and rules of the CGST Act, 2017, and the CGST Rules, 2017.

Ruling:
1. GISFS must charge/pay GST @18% on the entire amount received from their clients, which includes wages and establishment charges.
2. GISFS is eligible to take GST credit if they charge/pay GST on the entire amount received from clients, subject to the fulfillment of conditions/provisions in the CGST Act, 2017, and CGST Rules, 2017.

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