APPLICABILITY OF GST ON PAYMENT OF ACTUAL WAGES THROUGH LABOUR CONTRACTOR
Query (Issue) Started By: – GEE LIMITED Dated:- 12-4-2018 Last Reply Date:- 27-9-2018 Goods and Services Tax – GST
Got 10 Replies
GST
QUERY REGARDING GST APPLICABILITY ON PAYMENT OF WAGES TO INDIVIDUAL LABOURERS
* LABOUR CONTRACTOR PROVIDES WORKERS TO A FACTORY FOR MANUFACTURING OF GOODS.
* HE IS ISSUING THE FOLLOWING MONTHLY BILLS TO THE FACTORY
BILL NO.1 (APRIL 2018)
Total Mandays
Amount
REIMBURSEMENT OF WAGES (ACTUALS WITH EMPLOYEE WISE DETAILS)
1664
670844
EPF – EMPLOYER CONTRIBUTION (ACTUALS)
39969
ESI – EMPLOYER CONTRIBUTION (ACTUALS)
31866
TOTAL
742679
BILL NO.2 (APRIL 2018)
Total Working Days
Rate
Amount
CHARGES FOR PROVIDING LABOUR
1636
20
32720
(Total Mandays – Paid Holidays = Total Working Days)
* WHETHER THE CONTRACTOR IS LIABLE TO CHARGE GST ON BOTH THE BILLS OR WHETHER BILL NO.1 FOR REIMBURSEMENT OF ACTUAL WAGES, EPF AND ESI PAYMENTS WILL BE EXEMPTED FROM THE
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II.
Reply By Rajagopalan Ranganathan:
The Reply:
Sir,
Rule 33 of CGST Rules, 2017 states that-
Notwithstanding anything contained in the provisions of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,-
(i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient;
(ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and
(iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account.
Explanation.- For the purposes of this rule, the expression “pure agent” means a person who-
(a) enters into a contractual agr
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efore, A's recovery of such expenses is a disbursement and not part of the value of supply made by A to B.
In your case the supplier of manpower cannot be treated as 'pure agent' of you as per the definition given in the rule. Therefore the contractor is correct in charging gst on the entire amount charged by him towards supply of manpower.
Reply By Susheel Gupta:
The Reply:
Employer of the contractual labour shall be the contractor not company. Moreover,as per ESI and PF records the employer shall be contractor. Therefor the transaction cannot be covered under Schedule III.
Labour contractor cannot be treated as pure agent since as per rule 33(iii) "the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account". In your case the contractor is not taking any additional services from the labour instead this is the primary services which the contractor is provid
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