Indirect Tax Alert

Manpower Supply Services

June 06, 2024

In the context of Goods & Service Tax (GST), the supply of manpower services, if considered taxable should be covered under section 7 of the CGST Act, 2017. This section defines the term “supply”. The term supply includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal including the supply of manpower services. Therefore, supply of manpower services falls within the ambit of section 7 of the CGST Act, 2017 and business providing such services are required to comply with GST compliances.

Manpower supply refers to the provision of human labor or work force services within the framework of the GST. Business providing manpower services are required to charge GST on their services and remit the tax collected to the government treasury. Manpower agencies act as a bridge connecting businesses with the needed workforce (temporary or permanent). This service of supplying manpower falls under the ambit of GST.

Generally, GST rate for manpower services is 18%. It is important to note here that if the intra state supply of such services are provided to central government (CG) or state government (SG) or union territory or local authority or governmental authority by way of any activity in relation to any function entrusted to a panchayat under article 234G of the constitution or in relation to any function entrusted to a municipality article 234W of the constitution are exempt as per Notification No. 12/2017, Central tax (Rate), dated June 28, 2017, entry no.3,provided few conditions need to be satisfied for exemption: -

  • There must be a pure service (excluding work contract service or other composite supplies involving supply of any goods). Pure services like security guard, housekeeping staff, data entry operators, clerical staff
  • The supplied manpower should directly support the core function of the government department. These are essential duties and responsibilities mandated by the relevant law.
  • Supplying staff for commercial activities undertaken by the government might not be exempt.

Special point to ponder in relation to manpower supply services: -

Is there any GST implication if a foreign holding company sends its technical and other staff to their subsidiaries in India?

It’s a normal business practice for multinational companies to send technical and other staff/employees to work in their subsidiaries in different countries. The purpose could be training, project execution or knowledge transfer. Prior to the judgement of Northern Operating Systems (NOS) case delivered by the Apex Court, it was a settled position that such secondment arrangements of the employees from overseas entity to Indian company shall be covered under employer-employee relationship via judgements like Nissin Brake etc. However, this NOS judgement has opened a Pandora box for all the big multinationals. The judgement concluded that such secondment of employees will be treated as import of manpower supply services by the Indian company from its parent/holding company.

Under the GST Laws, the place of supply for manpower supply services is generally the location where the services are received. In these cases of dispatch of employees by foreign company to Indian Company the location of supplier is outside India and the services are being rendered in India and in this case place of supply would be India.

Nevertheless, it is important to analyze the facts of each arrangement to understand the applicability of the judgement. The industry is facing hue and cry on the matter and various multinationals having such arrangements receiving notices by the GST authorities. In this series of tax alerts on manpower, our focus is to keep our readers updated on the developments and technicalities of these cases and support them in analyzing their arrangements.

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