GST Applicable on Wages Paid to Outsourced Staff Treated as ‘On Duty’ During COVID-19 Lockdown: AAR [Read Order]

In a recent order, the Kerala Authority for Advance Ruling (AAR) has said that GST must be paid on wages and interim payments given to outsourced staff who were treated as “on duty” during the COVID-19 lockdown.

The case was filed by M/s The Kerala State Ex-Servicemen League (KSESL), a charitable organisation which supplies manpower to government departments and public sector units. KSESL asked the Authority whether GST was applicable on payments received from Vikram Sarabhai Space Centre (VSSC) during the lockdown period.

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KSESL had a contract with VSSC to provide outsourced workers like drivers, messengers and medical attendants. During the lockdown from 23 March 2020 to 31 May 2020, these workers did not go to work. Still, as per instructions issued by the Ministry of Finance, outsourced staff were to be treated as “on duty” and paid their wages.

Based on this, VSSC made interim payments to KSESL, which were fully passed on to the workers without charging GST. KSESL argued that no actual work was done during the lockdown and the payments were only to support the workers. It also argued that it did not make any profit and was working only for welfare of ex-servicemen.

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The Bench consisted of Shri A. K. Abdul Rahiman (State Tax Officer) and Shri R. Sreelal (Additional Commissioner of Central Tax) observed that KSESL is registered under GST and is providing manpower supply services, which are taxable. It explained that since the workers were officially treated as “on duty”, the contract between KSESL and VSSC was still continuing during the lockdown period. The payments were connected to the contract and cannot be treated as free assistance.

The Authority also pointed out that under GST law, tax is payable on the full amount received for manpower services, including wages, even if the organisation keeps nothing for itself. It explained that just because work was not physically done, GST liability does not stop when the contract is valid.

The AAR held that the payments received from VSSC during the lockdown are taxable and no GST exemption is available for such payments. As a result, GST is payable on the entire amount received by KSESL.

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