Supply of manpower, security services to Government to be considered as ‘Pure Services’ and Exempt in GST

Introduction

Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 exempts Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government entity by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution or in relation to any function entrusted to a Municipality under article 243W of the Constitution.

Is exemption  available for providing manpower services to the Government?

Let us refer to the case of M/s. A.B Enterprise who sought advance ruling at the Gujarat AAR in context to the availability of exemption for providing manpower services to the Government.

Facts of the Case:-

1. The applicant is a partnership firm registered under GST
2. Applicant is engaged in the business of providing manpower services to Government as well as Non-Government entities.
3. The supply of services includes manpower supply for housekeeping, cleaning, security, data entry operators etc. at various positions in such Government departments.
4. They also provide such services to private organizations/corporate on which GST is collected and discharged in appropriate manner.

Issue Involved

The issue involved in this case is whether applicant is eligible to claim exemption benefit under Notification No.12/2017-Central Tax (Rate) for pure services (supply of manpower, security service) provided to Central Government, State Government, Local Authorities, Governmental Authorities and Government Entities.

Proceedings of AAR

Conditions to be fulfilled to be eligible for taking the benefit of the exemption Notification No.12/2017-Central Tax(Rate)

1. Pure services are to be provided
2. Service recipient should either be Central Government or State Government or Union territory or Local authority or Governmental authority or Government entity
3. Such services provided should be by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India.

1^st condition – Pure services are to be provided

1. Since ‘pure service’ has not been defined under GST, the same can be construed in general terms.
2. Supply which is either deemed as services under Schedule II of CGST Act or which is not covered under the definition of goods shall be categorized as pure services.
3. However, works contract services or other composite supplies involving supply of any goods are not covered in the exemption notification.
4. In other words, if a person provides only service to any person without involvement of supply of goods along with supply of services, then the same would be termed as supply of pure service.
5. Ongoing through the work orders submitted by the applicant with regard to services provided to the entities, it was seen that the services provided were only of manpower supply or security services.
6. Since there was no involvement of supply of goods in these services, the services would be called ‘pure services’.
7. Hence, the first condition was fulfilled.

2^nd condition – Service recipient should either be Central Government or State Government or Union territory or Local authority or Governmental authority or Government entity

Reference to the following definitions was given to find out compliance of the 2^nd condition

1.As per Section 2(53) of the CGST Act, 2017, “Government” means the Central Government

2. As per Section 2(53) of the Gujarat GST, Act, 2017, “Government” means the State Government.

3. “local authority” means

i. a “Panchayat” as defined in article 243(d) of the Constitution

ii. a “Municipality” as defined in article 243P(e) of the Constitution

iii. a Municipal Committee, a Zilla Parishad, a District Board, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control or management of a municipal or local fund

iv. a Cantonment Board as defined in section 3 of the Cantonments Act, 2006

v. a Regional Council or a District Council constituted under the Sixth Schedule to the Constitution

vi. a Development Board constituted under article 371 of the Constitution

vii. a Regional Council constituted under article 371A of the Constitution

4. “Governmental authority” means an authority or a board or any other body:-

i. set up by an Act of Parliament or a State Legislature

ii. established by any Government, with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution or to a Panchayat under article 243 G of the Constitution.

5. “Government Entity” means an authority or a board or any other body including a society, trust, corporation:-

i. set up by an Act of Parliament or State Legislature

ii. established by any Government, with 90per cent. or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority

On examination of the details submitted by the applicant as well as taking into consideration the definitions mentioned above and the data available online, we reach the following conclusion that the recipient of the services of the applicant was the Central Government, Gujarat State Government, local authority and governmental authority.

3rd condition – Services should be provided by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India.

1. During the course of discharge of various functions by various entities, different work orders are issued according to which services are provided by the applicant.
2. Since the applicant, at various stages, enters into different agreements with various authorities for provision of services, it is not practical to examine at this stage, each contract, he has entered into with the recipients of services.
3. Further, during the course of providing services, the applicant would also enter into further agreements with the service recipients.
4. It is not possible to foresee the nature of all these agreements at present. Further, there could also be modifications/ amendments in the existing agreements and the nature of service could be subsequently altered.
5. Therefore, the reply to the query raised by the applicant cannot be answered in plain ‘no’ or ‘yes’.
6. Therefore, it was held that the nature of these agreements and the services provided by the applicant would determine whether the third condition as discussed above has been met or otherwise.
7. AAR held that applicant shall be eligible for the exemption only if the services in question are provided by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India.

Conclusion by AAR

1. Exemption sought by the applicant will depend upon the nature of services provided by them in terms of specific contracts entered by them with respective service recipients.
2. AAR came to the conclusion that the applicant is eligible to claim exemption benefit under Notification No.12/2017-Central Tax (Rate) dated 28.06.2017 for pure services (supply of manpower, security service) provided to Central Government, State Government, Local Authorities, Governmental Authorities, Government Entities as detailed above subject to the condition that the services provided to these entities mentioned above are provided by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution of India or in relation to any function entrusted to a Municipality under Article 243W of the Constitution of India.

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