GST Applicability on Payment of Wages To Individual Labourers – A Detailed Analysis
One Very Frequent Query that I have got from a lot of our readers was about the applicability of GST on the Wages paid to Individual Labourers by a Manufacturing or Construction Contractors. The cause of Confusion is that GST exempts Employer and Employee services only, so whether wage earners can be called as employees of a concern even if there are not paid so called ‘salary’ but are paid ‘wages’.
Before, we discuss it minutely, let me draw your attention to GST Laws in this Context.
As per Section 7 of CGST,
“supply” includes––
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),––
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,
shall be treated neither as a supply of goods nor a supply of services.
Hence any activity or transactions specified in Schedule III shall not be liable to GST as it does not constitutes a Supply.
As per Sl. No. 1 of Scheule III – “Services by an employee to the employer in the course of or in relation to his employment” shall not be treated as Supply therefore No GST Applicable.
From, above two things are pretty clear,
a) The Word Salary is not even mentioned.
b) The Term is Employer – Employee – Employment
Now, whether ‘Wage Earning’ Labour can be called as Employee under Employment.
In Tapas Paul Versus ACIT, Circle-51, Kolkata ITAT KOLKATA recently in its order dated 03 May 2017 vide ITA No. 237/Kol /2014 has held that :-
The employer is a person who controls and directs a servant or worker under an express or implied contract of employment. The employer accordingly is under obligation to pay him the salary or wages in compensation. Accordingly, an individual who works part-time or full-time under a contract of employment whether oral or written expressed or implied and he is liable to perform the duties as assigned. That person is called as employee.
In the instant case we find that the labourers are working under the direct supervision of the assessee. They have no other separate business organization. They are representing the organization of the assessee. Thus in our considered view there exists an employer and employee relationship between the assessee and labourers. The payment to the employees can be in the form of fixed salary plus incentive commission as mutually agreed.
Similarly the payment of PF and ESI by the employer cannot be the basis of deciding whether there exist employer and employee relationship. For the applicability of PF and ESI there are certain conditions attached to an organization. The character of the relationship of the employer and employee cannot be changed on the basis whether an organization is registered under PF and ESI.
Author’s View
In Light of the above, in our view, where the wages are paid to Individual Labours under Direct Supervision of the Manufacturers or the Contractors, the same can be termed as “Employee under Employment” and hence No GST shall be Applicable. Obviously, the situation will not be same in case of Contract Labour.
CA Ankit Gulgulia (Jain) | ankitgulgulia@gmail.com
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