The Kerala Authority for Advance Ruling (AAR) has held that GST is applicable on payments received by The Kerala State Ex-Servicemen League (KSESL) from Vikram Sarabhai Space Centre (VSSC) during the COVID-19 lockdown period, even though the amounts were disbursed to outsourced workers as interim wages when no physical services were rendered. The Authority further ruled that no GST exemption is available for such payments, as they constitute consideration for manpower recruitment or supply services.
The Kerala State Ex-Servicemen League, a charitable society registered under the Travancore-Cochin Societies Registration Act, 1955, is engaged in supplying ex-servicemen to government departments and public sector undertakings on a contract basis. Under an existing contract with VSSC, KSESL provided manpower such as office drivers, messengers and medical attendants. During the nationwide lockdown between March 23, 2020 and May 31, 2020, the outsourced workers did not perform duties; however, VSSC released part payments/interim wages in accordance with Office Memorandum dated March 23, 2020, issued by the Ministry of Finance, which directed that outsourced staff be treated as “on duty” and paid wages during the lockdown.
While examining the application, the Authority comprising Shri Jomy Jacob, IRS (Central Tax Member) and Shri Mansur M.I. (State Tax Member) observed that the contractual relationship between KSESL and VSSC for supply of manpower continued uninterrupted during the lockdown, and the legal fiction of workers being treated as “on duty” preserved the quid pro quo under the contract. The Authority held that the interim payments were not ex-gratia or compensation for non-performance, but were made pursuant to the subsisting manpower supply agreement.
The AAR further held that manpower recruitment or supply services are taxable at 18%, and that even where the entire amount is disbursed as wages to employees, the gross consideration received from the service recipient remains taxable. The Office Memoranda issued during the pandemic were held to be welfare measures for workers and did not create any GST exemption. In the absence of any specific exemption notification under the CGST Act, the Authority ruled that GST was payable on the full amount received.
Accordingly, the AAR answered both questions against the applicant, holding that GST is applicable on interim wage payments received from VSSC during the lockdown period, and that no exemption is available for such payments, which must be regularised by the service provider.
Appearances:
For the Applicant – Chartered Accountant Sangeeth Kumar
