The Telangana Authority of Advance Ruling (AAR) in its recent ruling in the case of Smt. Bhagyalakhsmi Devamma Vangimallu has ruled that the supplier of housekeeping services is required to pay GST on reimbursements of EPF, ESI, Salary, or Wages recovered from the recipient.
Facts of the Case:
- The applicant Smt. Bhagyalakhsmi Devamma Vangimallu whose trade name is M/s. Versatile Resource Solutions has entered into a contract with M/s. Asian Institute of Gastroenterology Private Limited, Somajiguda, Hyderabad (AIGPL / Hospital) for providing Housekeeping services.
- As per the MoU the applicant will provide Housekeepers and supervisor to maintain and assist the medical team of the Hospital in maintaining cleanliness, covering 24 Hours service on shift basis.
- The applicant charges Salary, ESI, PF etc alongwith commission charges against each bill raised on AIGPL.
Issue on which ruling was sought:
The applicant has sought the advance ruling on the issue, Whether are not applicant is liable to pay tax on the amount of wages / salaries, EPF/ ESI etc., reimbursed by AIGPL..
Arguments of the applicant
- Salary / wages are fixed by the Hospital management and as EPF, ESI are statutory payments, therefore these amounts reimbursed by the Hospital management cannot form value of supply.
- The applicant is passing on the Salary, ESI, PF, etc., received from the contractee to the persons employed in housekeeping. The same is passed on to the persons employed. However, they are charging commission/charges against each such bill. Therefore in their view, they are pure agents of the contractee, and as such the amounts received by them and passed on to the employees do not form turnover at their hands.
- That in the pre GST period reimbursable expenses have been held not to form gross value of service provided by the service provider and hence not assessable to tax. Reliance was placed on decision of Delhi High Court in the case of M/s. Intercontinental Consultants (2012) 12TMI 150 and other Tribunal Judgments relating to service tax valuation rules.
- That value of supply to be arrived under Section 15 (1) of the CGST Act, 2017 is transaction value which should be paid by the recipient. This is further qualified by two conditions:-
i. Suppler and the recipient of the supply are not related; and
ii. The price is the sole consideration of supply.
That both the above conditions are met by the applicant.
- That after deducting salaries, wages, EPF, ESI etc., the net amount received by the applicant is taxable.
Order of Telangana AAR: Deliberations and Ruling
- The AAR noted that the case law relied by the applicant relates to interpretation of service tax valuation rules, enumerated in the Finance Act. The Hon’ble High Court of Delhi and later the Hon’ble Supreme Court of India discussed the applicability of Rule 5 of Service Tax Rules and Sections 66 and 67 of Finance Act of India. No general principles have been laid down for determination of value of supply on service in these Judgment which travel beyond the interpretation of these rule and related section pertaining to the pre GST Service tax.
- AAR adjudged that applicant is not a pure agent under GST Law. Further the deductions available under Section 15 of the CGST Act do not include the amounts pertaining to EPF, ESI, Salary, or Wages. Therefore entire amount received from the Hospital are exigible to CGST / SGST Act 2017.
In view of above deliberations the coram of Members, S.V.Kasi Visveshwara Rao and B.Raghu Kiran ruled that the applicant is not a pure agent under GST Law. Further it adjudged that the deductions available under Section 15 of the CGST Act do not include the amounts pertaining to EPF, ESI, Salary, or Wages. Therefore the entire amount received from the Hospital is exigible to CGST / SGST Act 2017.
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
