GST Applicable On Lockdown-Era Payments Made By VSSC To Manpower Supplier Despite No Physical Work: Kerala AAR
Pranav B Prem
The Kerala Authority for Advance Ruling has ruled that Goods and Services Tax (GST) is payable on payments made by the Vikram Sarabhai Space Centre (VSSC) to a manpower supplier during the COVID-19 lockdown period, even though no physical services were rendered during that time. The ruling was delivered by a Bench comprising Jomy Jacob, IRS, Additional Commissioner of Central Tax, and Mansur M.I., Joint Commissioner of State Tax, on an application filed by The Kerala State Ex-Service League, a charitable society engaged in supplying ex-servicemen as manpower to government departments and institutions.
The issue arose in respect of wages and interim payments received from VSSC for the period between 23 March 2020 and 31 May 2020, when work was suspended due to the nationwide lockdown imposed to contain the COVID-19 pandemic. The applicant contended that since no duties were performed by the outsourced personnel during this period, the amounts received could not be treated as consideration for supply of services and therefore should not attract GST.
It was argued that the payments were made in accordance with Office Memorandums issued by the Ministry of Finance, which directed that outsourced staff be treated as “on duty” during the lockdown and be paid wages accordingly. The applicant submitted that these payments were in the nature of interim financial support or welfare assistance to employees and not consideration for manpower services. On this basis, it was claimed that GST was not payable on the amounts received from VSSC.
The Authority, however, did not accept this contention. On examining the manpower supply contract between the applicant and VSSC, the AAR noted that the contractual arrangement continued to remain in force during the lockdown period. It observed that the Office Memorandums issued by the Ministry of Finance did not classify the payments as ex gratia or compensation, but instead treated the lockdown period as “on duty” for outsourced personnel.
The AAR held that the mere absence of physical work during the lockdown did not alter the nature of the contractual relationship between the parties. As the manpower supply contract subsisted and the payments were made under that contract, the amounts received constituted consideration for supply of manpower services. The Authority observed that under the Central Goods and Services Tax Act, 2017, supply of manpower services is a taxable supply and GST is leviable on the entire consideration received, including recovery of wages and staff costs.
It was further held that the fact that the entire amount received from VSSC was disbursed to the employees did not affect the taxability of the supply. The Authority also rejected the argument that the payments could be treated as welfare assistance, noting that the Office Memorandums only created a legal fiction of “on duty” status during the lockdown and did not change the character of the payments as contractual consideration.
The AAR additionally found that no exemption under Notification No. 12/2017–Central Tax (Rate) was applicable to the payments in question. In the absence of any specific GST exemption for manpower services during the lockdown period, the Authority concluded that GST was payable at the applicable rate on the full amount received from VSSC.
Accordingly, the Kerala AAR ruled that GST is applicable on the wages and interim payments received by the manpower supplier from Vikram Sarabhai Space Centre during the lockdown period, notwithstanding the fact that no physical services were rendered, and directed that the tax liability be regularised in accordance with law.
Name of the Applicant: The Kerala State Ex-service League
