GST Exemption Denied to Sub-Contractor: AAR

Case Background

The applicant, working as a sub-contractor, provided manpower (pure labour) services to Webel Technology Limited (WTL), a West Bengal State Government company. WTL, in turn, supplied labour services to the New Town Kolkata Development Authority (NKDA), which is recognized as a local authority.

The applicant argued that since the ultimate service recipient was a local authority, the transaction should fall under the exemption provided in Entry No. 3 of Notification No. 12/2017-Central Tax (Rate), dated 28 June 2017. This entry exempts “pure services (excluding works contract or composite supplies involving goods) provided to the Central Government, State Government, Union Territory, local authority, Governmental authority or Government entity.”

Accordingly, the applicant claimed GST exemption on its services and sought a ruling from the Authority for Advance Ruling (AAR), West Bengal.

Observations of the AAR

The AAR noted that the exemption is available only if services are provided directly to a government body, local authority, or governmental authority.

In this case:

• The applicant was providing manpower services to WTL, which is a government company.

• The services were not provided directly to NKDA (the local authority).

Therefore, the condition laid down under Entry No. 3 was not satisfied.

Ruling

The AAR held that the supply of manpower services by the applicant to WTL would not qualify for GST exemption. Since WTL is not a local authority but a government company, the exemption clause does not apply.

The applicant must therefore charge GST on the manpower supply made to WTL. The decision went in favour of the Revenue.