2024 (4) TMI 358 - AAR - GST

Valuation - Advance ruling application for determination of the liability to Pay tax on Service - Supply of Labour / Employees to others (Principal Employer) to work under the direct supervision and control of the Principal Employer - Payment to employees - Whether GST is payable only on the service charges / commission or Income received by whichever name by the Agency Supplying Manpower and not on the salary / wages and related payments made to the Employees - Admissibility of the application - HELD THAT - We find that it is imperative to mention here that the labour / employee supplied by the applicant are the employees of the applicant and the employee employer relation as put forth in Schedule III of the CGST Act 2017 is between the applicant and the labour / employee supplied by him and not between the principal employer and the labour / employee supplied by the applicant. As per the sample work order submitted by the applicant it is seen that the applicant is responsible for paying the salary and depositing the EPF ESIC etc pertaining to the labour / employee supplied by him to the principal employers. The applicant through the labour / employee is supplying security service cleaning service etc to the recipients of services as per their requirement and hence the total consideration charged by the supplier of labour shall be the taxable value for the purpose of GST. Further with regard to the applicant s submission that the payment to these employees is only routed through them and does not constitute to their income we find that the applicants understanding is misplaced. Unlike Income Tax which is a direct tax levied on the income of the individuals and business GST is an indirect tax applicable to the supply of goods and services and is leviable on the consideration in relation to the supply of goods or services or both. As can be seen from Section 15 of the CGST Act 2017. there is intent to include even all taxes duties cesses fees and all charges including the amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of supply in the value of supply. Hence it can be seen that applying the interpretation as put forth by the applicant i.e the salary / wages and related payments made to the employees do not form part of the taxable value leads to undervaluation of supplies made by the applicant and short payment of GST. Admissibility of the application - Proceedings is not defined under CGST Act. In the absence of statutory definition the term proceedings shall be accorded a literal interpretation. The term proceedings has been used in various Sections of the Act under different context and one such mention is made in the Form DRC-01A. The subject of Form DRC-01-A mentions Case proceedings reference no and the body of the form starts with Please refer to case proceedings. In this regard the amount of tax interest penalty payable . . Hence it is clear that proceedings is said to have been pending in as much as the investigation had commenced much before the filing of the advance ruling application by the applicant. Therefore the appellants contention that the proceedings comes to play only when the question as to the service rendered by the contract employees is taxable service or not is decided is not correct. On considering the first proviso to section 98(2) of the Act comprehensively It is apparent that the first proviso covers any proceedings in the case of an applicant under any of the provisions of the Act including Section 67 and Section 74 of the Act under which investigation was conducted by the Headquarter Preventive Unit Trichy GST Commissionerate. In the instant case the applicant has submitted that the proceeding commenced by the authorized officer is not directly related to the issue upon which Advance Ruling is sought for however we find that neither during the personal hearing nor till date the applicant has differentiated the question on which advance ruling is asked and the issues covered in the show cause notice issued to the applicant particularly with regard to short payment of GST. Hence as the proceedings had commenced much before the filing of advance ruling application we hold that the subject application is liable to be rejected under first proviso to Section 98(2) of the Act. Thus we order as under; The advance ruling application is rejected for the reasons discussed.

Summary

Issues Involved:
1. Admissibility of the Advance Ruling application in light of pending proceedings.
2. Determination of GST liability on service charges/commission versus salary/wages and related payments.

Summary:

Admissibility of the Advance Ruling Application:
The applicant, involved in the supply of labor/employees to principal employers, sought an advance ruling on whether GST is payable only on the service charges/commission received and not on the wages and other related payments made by the principal employer to the employees, which are routed through the applicant. However, it was noted that the applicant was already under investigation by the Headquarter Preventive Unit, Trichy, and a Show Cause Notice dated 30.06.2023 had been issued, involving issues of short payment of GST. According to the first proviso to Section 98(2) of the CGST Act, 2017, the Authority shall not admit an application where the question raised is already pending or decided in any proceedings under the Act. The Members confirmed that the applicant cannot file an Advance Ruling application on issues for which proceedings have already been initiated. Therefore, the application was rejected on grounds of inadmissibility.

Determination of GST Liability:
The applicant argued that GST should be payable only on the portion of service charges/commission received and not on the wages and other related payments made by the principal employer to the employees, citing several case laws. However, the Authority found that the definition of "consideration" under Section 2(31) and the provisions regarding the "Value of Taxable Supply" under Section 15 of the CGST Act, 2017, indicate that the entire payment received by the applicant, including salary/wages and related payments, constitutes consideration and is subject to GST. The Authority also noted that the cited case laws were not relevant to the determination of valuation of supplies under GST law. Furthermore, the labor/employees supplied by the applicant are considered employees of the applicant, not the principal employer, and thus the entire consideration charged by the supplier of labor is the taxable value for GST purposes.

Ruling:
The advance ruling application is rejected for the reasons discussed, primarily due to the pending proceedings against the applicant, which preclude the admission of the application under the first proviso to Section 98(2) of the CGST Act, 2017.