2022 (2) TMI 842 - AAR - GST

Levy of GST - Valuation - GST at 18% on reimbursement of expenses i.e. Basic Salary ESIC EPF Bonus with service charge or only on service charge for providing pure service by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution? - applicability of exemption contained in sl. No. 3 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017 - HELD THAT - There is mention of only rate per manpower per month in the Work orders and total amount of work order is excluding EPF/ESIC/WC contribution/commission charges taxes. Further in the tax invoice raised by the applicant there is mention of cost of employees and the commission and there is no mention of EPF/ESIC/WC contribution on the invoice. MPMKVVCL is presently not an establishment with 90 per cent or more participation by way of equity or control to carry out a function entrusted by the State Government. There is also nothing on record that MPMKVVCL is set up by an Act of Parliament or State Legislature. As such we hold that MPMKVVCL is not a Govt. entity - although there is no such mention on the website of MPPKVVCL it is all likelihood that the same is also presently not an establishment with 90 per cent or more participation by way of equity or control to carry out a function entrusted by the State Government like MPMKVVCL. There is also nothing on record that MPPKVVCL is set up by an Act of Parliament or State Legislature. Further the Chief Financial Officer MPPKVVCL Indore in his GST Circular-11 issued under F.No. MD/WZ/02/Tax/259/9425 dated 10.05.2018 has only given the definition of Government Entity and declared the Company as Government Entity without giving any criterion of the applicability of the said definition on the Company. As such we hold that MPPKVVCL also is not a Govt. entity. Although it is accepted that rural electrification including distribution of electricity is covered in function entrusted to a Panchayat but we are of the view that the invoices issued to the Executive Engineer MPPKVVCL or GM MPMKVVCL by the applicant with description of supply of manpower (Rural) is not a sufficient document to conclude that the manpower will be actually used for distribution of electricity in rural area as a sub-station supplying electricity covers large area which include rural as well as urban area - the applicant is not entitled for exemption contained in Sl.No. 3 of the Notification No. 12/2017-CT (Rate) dated 28.06.2017. 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 - As per Section 15 of the CGST Act 2017 there is intent to include even all taxes duties cesses fees and all charges in the value of supply and there can be no exception for ESI and EPF amount. Therefore taking into the view the definition of consideration and the aspect of valuation of supply as discussed above it is apparent that the GST is chargeable on the entire amount received by the applicant against supply of manpower.

Summary

Issues Involved:
1. Applicability of GST at 18% on reimbursement of expenses (Basic Salary, ESIC, EPF, Bonus) along with service charge.
2. Determination if the services involving reimbursement of expenses for deployed manpower are NIL rated under GST.

Issue-wise Detailed Analysis:

1. Applicability of GST at 18% on reimbursement of expenses (Basic Salary, ESIC, EPF, Bonus) along with service charge:

The applicant, a Central Public Sector Enterprise, sought clarity on whether GST should be charged at 18% on the reimbursement of expenses, including Basic Salary, ESIC, EPF, and Bonus, in addition to the service charge for providing manpower services.

The applicant referenced Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, which specifies that pure services provided to the government or local authority by way of any activity in relation to functions entrusted to a Panchayat under Article 243G or a Municipality under Article 243W are NIL rated. The applicant argued that their services fall under this exemption as they provide manpower for rural electrification, a function under Article 243G.

However, the Authority found that the applicant's service recipients, MP Paschim Kshetra Vidyut Vitran Co. Ltd (MPPKVVCL) and MP Madhya Kshetra Vidyut Vitran Co. Ltd (MPMKVVCL), do not qualify as government entities. The definition of a government entity requires 90% or more participation by way of equity or control by the government, which was not evidenced for these entities. Thus, the exemption under Notification No. 12/2017-CT (Rate) was deemed inapplicable.

Further, it was determined that the entire payment received by the applicant, including salary, wages, and reimbursement of EPF and ESI contributions, constitutes 'consideration' under Section 2(31) of the CGST Act, 2017. Therefore, GST is applicable on the total amount received for manpower supply services.

2. Determination if the services involving reimbursement of expenses for deployed manpower are NIL rated under GST:

The applicant contended that their services should be NIL rated as they provide manpower for activities falling under Article 243G of the Constitution, specifically rural electrification.

The Authority examined the applicability of the exemption under Notification No. 12/2017-CT (Rate) and concluded that the applicant's invoices did not sufficiently demonstrate that the manpower was exclusively used for rural electrification. Additionally, since the service recipients did not qualify as government entities, the exemption could not be applied.

The Authority referred to Section 15 of the CGST Act, 2017, which stipulates that the value of a supply includes all payments made for the supply of goods or services. This includes incidental expenses and contributions such as EPF and ESI. Hence, the entire amount received for manpower services is subject to GST at 18%.

Ruling:

1. GST is liable to be paid at 18% on the reimbursement of expenses (Basic Salary, ESIC, EPF, Bonus) along with the service charge.
2. The services involving reimbursement of expenses for deployed manpower are not NIL rated under GST.

This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to provisions under Section 103(2) of the CGST Act, 2017, until declared void under Section 104(1) of the Act.