Fact and Issue of the case
The applicant Smt. Bhagyalakhsmi Devamma Vangimallu whose trade name is M/s. Versatile Resource Solutions has entered into a contract with M/s. Asian Institute of Gastroenterology Private Limited, Somajiguda, Hyderabad for providing Housekeeping services. As per the memorandum of Understanding, the applicant will provide Housekeepers and supervisor to maintain and assist the medical team of the Hospital in maintaining cleanliness, covering 24 Hours service on shift basis. It is the opinion of the applicant that as the salary / wages are fixed by the Hospital management and as EPF, ESI are statutory payments, therefore these amounts reimbursed by the Hospital management cannot form value of supply. Hence this application.
1. Whether or not, applicant is liable to pay tax on the amount of wages / salaries, EPF/ ESI etc., reimbursed by the client?
This being the case, Consequent upon receipt of the application filed by M/s. Bhagyalakhsmi Devamma Vangimallu, the jurisdictional officer i.e. Superintendent (Central Tax) Range, was requested vide this office letter CCT’s Ref no.A.R.Com/03/2019 dated: 11.04.2019 to inform, whether the questions raised in the application, is already pending or decided in any proceedings in the case of the applicant and to inform any issue pending before with them within a week lest it would be construed that these issues are not pending before them and the application would be processed under any of the provisions of the GST Act, 2017 and also requested to offer his/her comments on the points raised in the application, However case was admitted even though the Officer has not replied on the grounds of the draft letter, Therefore, Personnel hearing was given to the applicant.
Observation of the court
The applicant has made various averments regarding the deductibility of Wages / Salaries, EPF, ESI contribution which are reimbursed by the Hospital from the value of supply which is exigible tax under CGST/SGST Act. The contention of the applicant are abstracted as follows:-
That in the pre GST period reimbursable expenses have been held not to form gross value of service provided by the service provider and hence not assessable to tax. Reliance was placed on decision of Delhi High Court in the case of M/s. Intercontinental Consultants (2012) 12TMI 150 and other Tribunal Judgments relating to service tax valuation rules.
That value of supply to be arrived under Section 15 (1) of the CGST Act, 2017 is transaction value which should be paid by the recipient. This is further qualified by two conditions:-
i. Supplier and the recipient of the supply are not related; and
ii. The price is the sole consideration of supply.
That both the above conditions are met by the applicant.
That after deducting salaries, wages, EPF, ESI etc., the net amount received by the applicant is taxable.
In this connection , it is observed that the case law relied by the applicant relates to interpretation of service tax valuation rules, enumerated in the Finance Act. The Hon’ble High Court of Delhi and later the Hon’ble Supreme Court of India discussed the applicability of Rule 5 of Service Tax Rules and Sections 66 and 67 of Finance Act of India. No general principles have been laid down for determination of value of supply on service in these Judgment which travel beyond the interpretation of these rule and related section pertaining to the pre GST Service tax.
The applicant is not a pure agent under GST Law. Further the deductions available under Section 15 of the CGST Act do not include the amounts pertaining to EPF, ESI, Salary, or Wages. Therefore entire amount received from the Hospital are exigible to CGST / SGST Act 2017.