The West Bengal Authority of Advance Ruling (AAR) ruled that payment of salary/wages by suppliers cannot be excluded from the value of supply for the purpose of Valuation under GST.
The applicant, Prodip Nandi is engaged in supplying manpower services to his clients on a daily/ monthly basis for different jobs as required by his clients. It has been submitted by the applicant that the clients also authorize him to make payment of salary/wages on monthly basis to the manpower provided by him.
The applicant submitted that he raises periodical invoices to his clients indicating salary/ wages payable against the manpower services supplied by him and also indicates the service charges payable to him at the agreed rates in the invoices in a separate manner. Upon receipt of payment from his clients, he disburses the salary/wages to the manpower provided by him.
The applicant as per the Client Service Agreement, whether the applicant is acting as a pure agent as defined in Explanation to Rule 33 of the CGST Rules, 2017, and 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 coram of Brajesh Kumar Singh and Joyjit Banik held that the applicant thus engages contract labor towards the supply of manpower services as required by his clients (recipient of services). Rule 33 of the CGST/WBGST Rules, 2017 clearly speaks that one of the conditions that have 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 with his client for supplying manpower services and subsequently engages different work-men (third party) at the place of business of his clients and thereby supplies manpower services only.
The AAR found no other services other than manpower services are provided by the applicant to his client. We further find that by virtue of the “Employment Agreement‟ made between the applicant (service provider) and work-man (third party), the applicant, being the employer, is liable to make payment to the third party (work-men/employee).
“The applicant is the person who is liable to pay salary/wages to the workmen 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. We accordingly fail to accept the argument that the applicant makes payment of such an amount “on behalf of” his client i.e., the service recipient,” the AAR said.
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