GST Payable On Payment Made By VSSC To Manpower Supplier During Lockdown Despite No Work: Kerala AAR

The Kerala Authority for Advance Ruling (AAR) has ruled that GST is payable on payments made by the Vikram Sarabhai Space Centre to a manpower supplier during the COVID-19 lockdown, even though no physical services were rendered.

The ruling came on wages and interim payments received between 23 March 2020 and 31 May 2020, when work was suspended due to the nationwide lockdown.

A coram comprising Jomy Jacob, IRS, Additional Commissioner of Central Tax, and Mansur M I, Joint Commissioner of State Tax, was hearing an application filed by a charitable society engaged in supplying ex-servicemen as manpower to government institutions.

The applicant-The Kerala State Ex-service League, argued that the amounts received from VSSC were not consideration for services. It said the payments were interim financial support paid to workers in line with Office Memorandums issued by the Ministry of Finance. Those memorandums treated outsourced staff as “on duty” during the lockdown. Since no work was actually performed, the applicant claimed the payments were wages or welfare assistance and should not attract GST.

The Authority rejected this argument.

It examined the manpower supply contract between the applicant and VSSC. It noted that the contract remained in force during the lockdown period. The Office Memorandums did not classify the payments as ex gratia or compensation.

Instead, the Office Memorandums treated the lockdown period as “on duty”.

The authority noted that the manpower supply contract between the applicant and Vikram Sarabhai Space Centre continued during this period. As the contractual arrangement remained in place, the payments could not be treated as welfare assistance or ex gratia support. The mere absence of physical work during the lockdown, it said, did not change the nature of the payments.

The AAR observed that the applicant was engaged in providing manpower services. Payments received under such a contract, it noted, amount to consideration for supply and fall within the scope of taxable supply under the Central Goods and Services Tax Act.Accordingly, the authority was of the opinion that GST was applicable on the amounts received, even though no physical services were rendered during the lockdown period.

It further held that the fact that the entire amount was disbursed to employees did not alter the taxability. Nor did the fact that no physical services were rendered during the lockdown.

The authority also found that no exemption under Notification No. 12/2017-Central Tax (Rate) applied to the payments.

Accordingly, the AAR ruled that GST is applicable on the wages and interim payments received from VSSC during the lockdown period and that the service provider must regularise its tax liability. 

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