2021 (11) TMI 149 - AAR - GST

Classification of services - supply of manpower services to his clients on daily/ monthly basis for different jobs as required by his clients - pure agent services as defined in Explanation to Rule 33 of the CGST Rules, 2017 - exclusion of payment of salary/wages by the supplier from the value of supply for the purpose of section 15 of the CGST Act, 2017 - HELD THAT - The applicant supplies manpower services for which he enters into an agreement with the recipient of services. It is submitted that the recipient of services authorizes the applicant to make payment of salary, wages and all allowances on behalf of him thereby the applicant makes such payment in the capacity of an agent of the service recipient. Further, payment of salary, wages and allowances made by the applicant is clearly and separately shown in the invoice raised by the applicant. For the purpose of supplying manpower services as per requirement of his clients, the applicant also enters into Employment Agreement with different work-men specifying the terms and conditions to be followed by the work-men and the wages/salary to be paid against services provided by them - the applicant maintains Register of Wages in Form XVII under rule 78(1) (i) of the Contract Labour (Regulation and Abolition) Central Rules, 1971 in respect of such supply of work-men. The applicant thus engages contract labour towards supply of manpower services as requited by his clients (recipient of services). Rule 33 of the CGST/WBGST Rules, 2017 clearly speaks that one of the conditions that has to be satisfied for exclusion of expenditure or costs from the value of supply which has been incurred by a supplier as a pure agent if the services procured by the service provider, as a pure agent of the recipient of service, from the third party are in addition to the services which he provides on his own account - Admittedly, in the instant case, the applicant first enters into an agreement to his client for supplying of manpower services and subsequently engages different work-men (third party) at the place of business of his clients and thereby supplies manpower services only. It is found that no other services other than manpower services are provided by the applicant to his client. In the instant case, undisputedly the applicant is the person who is liable to pay salary/wages to the work-men employed by him under Employment Agreement to provide manpower services to his clients and just showing such amount in a separate manner in the invoice doesn t shift his liability on the recipient of services and makes him qualify as a pure agent in terms of rule 33 of the CGST/WBGST Rules, 2017 - The contention of the applicant that the recipient of services authorizes him to make payment of salary, wages and all allowances on behalf of him doesn t hold water on the same ground that such amount is actually payable by the applicant himself - the argument that the applicant makes payment of such amount on behalf of his client i.e., the service recipient, cannot be accepted.

Summary

Issues Involved:
1. Whether the applicant is acting as a pure agent as defined in Explanation to Rule 33 of the CGST Rules, 2017.
2. Whether the payment of salary/wages by the supplier can be excluded from the value of supply for the purpose of section 15 of the CGST Act, 2017.

Issue-wise Detailed Analysis:

1. Whether the applicant is acting as a pure agent as defined in Explanation to Rule 33 of the CGST Rules, 2017:

The applicant contended that he acts as a pure agent under the Client Service Agreement for the purpose of payment of salary/wages in the course of supplying manpower services to the client. He neither intends to hold nor holds any title to the services supplied to his clients and does not use the services for his own interest. The applicant provided various documents, including a Manpower Supply Agreement, Employment Agreements, and other relevant records, to support his claim.

However, the revenue officer argued that the service provider (applicant) bears the entire service benefits and obligations pertaining to the workmen, such as PF, ESI, and Profession Tax. This cost is borne by the applicant and constitutes the procurement value of the manpower service, which contradicts the provisions of Rule 33(d) of the CGST Rules, 2017. The officer also pointed out that the service provider hires workmen as per the client's specifications and supplies them at a rate fixed by the client, indicating that the service provider is not merely acting as a pure agent but as a supplier of services.

The Authority observed that Rule 33 of the CGST/WBGST Rules, 2017, specifies that 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 certain conditions are satisfied. These conditions include that the supplier acts as a pure agent when making payments to third parties on authorization by the recipient, the payment is separately indicated in the invoice, and the supplies procured by the pure agent are in addition to the services supplied on his own account.

The Authority found that the applicant enters into an agreement with the client for supplying manpower services and subsequently engages different workmen to fulfill this requirement. The applicant also maintains a Register of Wages and other necessary records under the Contract Labour (Regulation and Abolition) Central Rules, 1971. However, the applicant is the one liable to pay salary/wages to the workmen employed by him under the Employment Agreement, and merely showing such amounts separately in the invoice does not shift this liability to the recipient of services.

Based on this analysis, the Authority concluded that the applicant does not qualify as a pure agent under Rule 33 of the CGST/WBGST Rules, 2017, as he is liable to make payments to the workmen and the amount is actually payable by him.

2. Whether the payment of salary/wages by the supplier can be excluded from the value of supply for the purpose of section 15 of the CGST Act, 2017:

The applicant argued that the payment of salary/wages should be excluded from the value of supply as he qualifies as a pure agent. However, the Authority found that the applicant does not meet the criteria of a pure agent as defined in Rule 33 of the CGST/WBGST Rules, 2017. Consequently, the payment of salary/wages by the supplier cannot be excluded from the value of supply for the purpose of section 15 of the CGST Act, 2017.

Ruling:

Both questions were answered in the negative. The applicant is not acting as a pure agent as defined in Explanation to Rule 33 of the CGST Rules, 2017, and the payment of salary/wages by the supplier cannot be excluded from the value of supply for the purpose of section 15 of the CGST Act, 2017.