2021 (12) TMI 266 - AAR - GST

Valuation - Section 15 of CGST Act - reimbursement of Employee Provided Fund ESI - HELD THAT - Section 15(1) of CGST Act 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. The condition contained in rule 33(iii) of the CGST Rules, 2017 provides that 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 the instant case, Labour contractor cannot be treated as pure agent as the contractor is not procuring any additional services from the third party and instead of this the contractor is providing/supplying the single service of manpower supply and the contractor is charging for the said service only. Further, there is no contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of services as the Work Order dated 22.02.2017 simply provides that after deposit of EPF and ESI in the concerned department, the reimbursement will be done as per rule and there is no mention in the said Work Order that the contractor will deposit EPF and ESI as the pure agent of the applicant. GST is liable to be paid @18% on the reimbursement of EPF and ESI contribution as the same is liable to be included in the value of supply as per Section 15 of the CGST Act, 2017.

Summary

Issues Involved:
1. GST liability on reimbursement of Employee Provided Fund (EPF) and Employees' State Insurance (ESI).

Issue-wise Detailed Analysis:

1. GST Liability on Reimbursement of Employee Provided Fund (EPF) and Employees' State Insurance (ESI):

The applicant, engaged in processing milk and manufacturing various milk products, sought an advance ruling on whether GST is applicable on the reimbursement of EPF and ESI contributions. The applicant has agreements with different manpower supply agencies, and these agreements include two components: payment for services and reimbursement of statutory liabilities such as EPF and ESI. The applicant argued that these reimbursements should not be subject to GST, citing Rule 33 of the GST Rules and a precedent set by the Advance Ruling Authority, Karnataka.

The jurisdictional officer did not offer comments on the applicant's query but provided the tax rate on milk products. The Deputy Commissioner opined that GST should be charged on the gross value, including EPF and ESI contributions.

The Authority for Advance Ruling (AAR) examined the definition of "consideration" under Section 2(31) of the CGST Act, 2017, which includes any payment made for the supply of goods or services. The AAR concluded that the entire payment received by the contractor, including reimbursements for EPF and ESI, constitutes consideration and is subject to GST.

Further, Section 15 of the CGST Act, which pertains to the valuation of taxable supply, was considered. It stipulates that the value of supply includes the transaction value and any taxes, duties, or charges. The AAR determined that EPF and ESI reimbursements are part of the value of supply and thus subject to GST.

The applicant's argument regarding Rule 33, which excludes costs incurred by a supplier as a pure agent from the value of supply, was also examined. The AAR found that the contractor does not qualify as a pure agent since there is no contractual agreement to act as such, and the contractor is not procuring additional services from third parties. Therefore, the reimbursement of EPF and ESI does not meet the conditions of Rule 33.

Ruling:

The AAR ruled that GST is liable to be paid at 18% (9% CGST and 9% SGST) on the reimbursement of EPF and ESI contributions, as these are included in the value of supply as per Section 15 of the CGST Act, 2017. This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.