Payment of salary/wages by the supplier to be included in value of supply for the purpose of GST

The applicant thus engages contract labor towards the supply of manpower services as required by his clients (recipient of services). Rule 33 of the CGST/WBGST Rules, 2017 clearly speaks that one of the conditions that has to be satisfied for exclusion of expenditure or costs from the value of supply which has been incurred by a supplier as a pure agent if the services procured by the service provider, as a pure agent of the recipient of service, from the third party are in addition to the services which he provides on his own account. Admittedly, in the instant case, the applicant first enters into an agreement to his client for supplying of manpower services and subsequently engages different work-men (third party) at the place of business of his clients and thereby supplies manpower services only.

In the instant case, undisputedly the applicant is the person who is liable to pay salary/wages to the work-men employed by him under “Employment Agreement” to provide manpower services to his clients and just showing such amount in a separate manner in the invoice doesn’t shift his liability on the recipient of services and makes him qualify as a “pure agent” in terms of rule 33 of the CGST/WBGST Rules, 2017. The contention of the applicant that the recipient of services authorizes him to make payment of salary, wages and all allowances on behalf of him doesn’t hold water on the same ground that such amount is actually payable by the applicant himself. We accordingly fail to accept the argument that the applicant makes payment of such amount “on behalf of” his client i.e., the service recipient.

RULING

Question: As per the Client Service Agreement, whether the applicant is acting as a pure agent as defined in Explanation to Rule 33 of the CGST Rules, 2017?

Question: Whether the payment of salary/wages by the supplier can be excluded from the value of supply for the purpose of section 15 of the CGST Act, 2017?

Answer: Both are answered in the negative.