GST is to be charged on entire invoice value including employer portion of EPF and ESI

GST is to be charged on entire invoice value including employer portion of EPF and ESI

Held by Hon’ble Authority of Advance Ruling, West Bengal

In the matter of M/s. Exservicemen Resettlement Society (Case Number 10 of 2021 Order Number 09/WBAAR/2021-22)

The applicant (M/s Exservicemen Resettlement Society) is a service provider of Security and Scavenging services to Medical Colleges, Govt. Hospitals etc. The invoice raised by the applicant includes Minimum wage, Employer Portion of ESI and EPF and GST @ 18% on gross invoice value. Wages amount is transferred to the employees through banking channels and EPF, ESI and GST amount are paid to the respective Authority through e-challan.

One of the customers of the applicant contended that GST should be charged only on Management Fee/Service Charges and EPF and ESI are paid to respective tax authorities, therefore, GST should not be charged on the same. The Revenue Authority contended that the value of supply shall be determined as per Section 15 of CGST Act. As per Section 15(2), entire amount shown in invoice, excluding GST, is considered as taxable value and there are no provision given for deduction of ESI and EPF Amount.

Hon’ble AAR upheld the view of the revenue and held Section 15 leaves no room for deduction of ESI and EPF Amount from taxable value. Therefore, GST is applicable on the entire invoice value.

Detailed ruling is discussed below:

1. Brief fact of the case

  • The applicant (M/s Exservicemen Resettlement Society) is a registered society providing security services and scavenging services (karma Bandus) to different Medical college & Hospital, District Hospitals and other hospitals of Government of West Bengal.
  • For supply of service, the applicant charges following amount in monthly invoice:
    • Minimum wage, 
    • Employer Portion of EPF @ 13%, 
    • ESI @ 3.25% and 
    • GST @ 18% on gross invoice value.
  • However, the recipient of the service has raised an objection that excess GST has been charged. As per recipient, GST should be payable on the Management fee/ services charges only and all other amounts should be excluded for GST computation purpose.
  • Further, some other recipients have objected that EPF & ESI amounts are deposited to their respective government Authorities and therefore, the same should be exempted from GST.

2. Questions before AAR

The Advance ruling has been sought for the clarification on the following questions:

  • Whether GST to be payable on Management Fee/Administrative charges only or otherwise complete billing amount?
  • Whether employer portion of EPF & ESl amount of the bill are exempted for paying GST?

3. Relevant Legal Extracts

Relevant extract of the CGST Act is reproduced below for ready reference:

  1. Section 15: Determination of Value of Supply

“15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.

(2) The value of supply shall include-

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;

3. Submission of the Applicant 

The applicant has made following submission before Hon’ble Authority of Advance Ruling:

  • The applicant is charging Minimum wages as per labour law notified by Govt. of West Bengal alongwith Employer Portion of EPF (13%), ESI (3.25%) and GST @18% on gross bill amount.
  • Wages amount is paid to the employee through bank payment and EPF, ESI & GST amounts are deposited in the respective government authorities through challans.

4. Submission of the Revenue

The Revenue has submitted its points as follows:

  • Valuation aspect is dealt by Section 15 of CGST Act, 2017. As per Section 15(2), it is crystal clear that total value indicated in invoice is to be considered for the purpose of valuation.
  • Further, contention of the applicant that only Management Fees/ Administrative charges are to be considered for GST valuation purpose is not backed by any law. Section 15(2) of CGST clearly says that the entire amount shown in invoice, excluding GST Component, is taxable value. 
  • Therefore, there is no ambiguity that EPF and ESI amount shown in invoice has to be included in taxable value for computation of GST liability.
  • Also, ESI and EPF contribution amount has nothing to do with the recipient or supplier of service. Such an amount belongs to the employee of the applicant. In this case, the applicant is only acting as collector cum depositor of the ESI and EPF amount. The supplier of service has received the entire amount for provision of service. Hence, all the amount received and mentioned in the invoice must be taxable as per the Law.
  • Revenue authority also relied on precedence of Advance Ruling Authority, Karnataka [Advance Ruling No. KAR ADRG 02/2021 dated 29/01/2021], wherein it was held that “The value of the taxable supply of the manpower services is the transaction value equivalent to the bill amount …”.
  • Accordingly, in the given case, taxable value shall be the entire invoice amount inclusive of EPF and ESIC amount any other amount(s) by whatever name called.

5. Finding of Hon’ble AAR

Analysed the submission of the applicant and the Revenue,the Hon’ble Authority of Advance ruling made the following analysis:

  1. Issue involved in the case is the valuation of service supplied by the applicant.
  2. As per Section 9 of CGST Act read with Section 5 of IGST Act, except for the purpose of computation of IGST on import of goods, CGST/SGST/IGST shall be levied on the value determined under Section 15 of CGST Act.
  3. From the provision of Section 15 it is clear that Section 15(2) specifies the elements which will form part of the value of supply and Section 15(3) mentions elements which are not to be included in value of supply.
  4. As per Section 15, there is no provision available which provides for deduction of Management Fee, ESI and EPF contribution. Therefore, in the given case, GST is liable on entire invoice value including EPF and ESI.

6. Conclusion 

Based on above discussion, Hon’ble AAR held as follows:

Question 1: Whether GST to be payable on Management Fee/Administrative charges only or otherwise complete billing amount?

Answer: As discussed above the GST shall be leviable on the total value of supply.

Question 2:  Whether employer portion of EPF & ESl amount of the bill are exempted for paying GST?

Answer: EPF & ESI amount will be taxable, hence there is no exemption from GST. 

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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