ESI/PF liability as it relates to contractor liability under GST.
- Is there any GST liability on any payments received by the specified person from the employer?
- Also, he was paid by the contractor to pay for the same from his contract laborers?
- The GST collected from the Contractor's laborers and forwarded to the department responsible for it.
- His workers are reimbursed for labor they perform on his behalf.
- The utility fee paid by the tenant to the utility company is not subject to GST since the landlord acts as an agent for the tenant. This position has taken on increasing importance in recent court rulings.
- Specified in Sec 15(1) of CGST Act of U.S., the value of a supply of goods or services or both shall be the price actually paid or payable for the said supply of goods or services or both, where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
- So the next question is, when the Labor contractor is collecting total amount as consideration of his supplies and Sec 15 (1) does not speak about inclusion of such elements as ESI/PF explicitly?
- Therefore, it might be better to exclude ESI/PF from the present Bill by adding a separate Bill.
- There is also a question as to whether the work will be covered under the Pure Agent Principle and thus exempted in the hands of the Contractor of the portion comprising WSI/PF in the consideration received from the Contractee Factory.
- Since the ultimate beneficiaries are employees and it is employed by the concerned department and recovered by the contractor from their employees, it is a pure reimbursement attracting agency principle and thus exempt from GST.
- But the money the contractor receives from the Contractee Factory will be subject to taxation, I should think, because the employees are not employees of the Contractee Factory but a contractor.
- When a contractor supplies labor to a service supplier for a lump sum amount, out of which he pays ESI and PF contributions, will the consideration paid to the contractor be subject to GST?
- To calculate the ESI and EPF, the answer is going by SEC 15 and the intention behind it. Even all taxes, duties, cesses, fees and all charges are to be included in the calculation.
- The only other option lies in challenging the validity of the contents of Sec 15(1) before the Court, but this is futile.
- The agency principle applies between the contractor and the employees. Whereas not between the contractor and the subcontractor, but rather between the contractor and the worker.
- This will not have any significance on the transaction, avoid speaking about it. By extension, here the elements of EPF and ESI are not considered separate obligations, as it is in relation to the contractor towards his contract laborers.
- The nexus is missing, and therefore not part of the scope of any available subsidy (1).
- What will it take to qualify for any abatement from the scope of value, and in what other manner shall it be exempted per se.
- The answer is a negative.
- It is true that an outsourced manpower service provider must pay EPF & ESI, because it's the outsourced provider's responsibility to pay GST. But does the contract not depend on agreement?
- To show individually is just a choice. But it will get taxed after being paid separately, or after any taxes have been paid to the contractor.
- The relationship between the factory and the contractor who works for the factory is between principals and not between employer and contractor. This must be completely understood.
- In the future, employers and contractors will likely be required to reimburse ESI/PF workers on an Agent-Principal relationship. What's the cause?
- The act ensures it occurs at the end of taxation. It should be viewed in the proper context.
- Looking at it from a revenue neutral perspective. The contractor pays the government in order to get the tax off the company. He has earned his ITC. What's his problem?
- Unless the company maintains a cash account with the ESI, they cannot talk about it. Nor will the contractor ever speak about his payment in a court of law.
- Please respond to me accurately. The service provider here has the legal obligation for ESI/PF. He can reimburse it to the contractor without incurring a self-employment tax liability. The laborer is not taxed on it.
- Where's is the company coming in the picture to pay less of ESI/PF of the labor contract bill, raised on it by the contractor, is the question
- The Author's response to the above is in that that if either the contractor or the company makes a deduction of it from the value, it will not help and they would be called upon to pay/bear the tax consequently, by getting it grossed up in value under escapement and it's actionable as suppression of value with intention to evade tax to that extent. It is punishable with penalties and interest, as well as tax.
- Employment Protection and Fairness are for the benefit of workers. Why tax it?
- Sec 15(1) doesn't have any relevant provisions. The contractor pays the labourer and then takes the pay annually. But when he collects it as a consideration from the Contractee Factory who is not the Principal employer having any obligation for such remittances, then there is question of any GST relief at that stage of the transaction, though down the supply chain, it gets appropriate relief.
- Companies will always have to hire people, even in factories. We can't eliminate it. Can I?
- The continuous supply of services means the supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract for a period exceeding three months where periodic payment obligations are involved, or the supply of such services as the Government may, subject to such conditions, as it may, by notification, specify.
- One needs to critically examine how the manpower is supplied by the contractors, who are specialized in supplying unskilled, semi-skilled, and skilled personnel.
- They charge the rate month to month, and partly on the basis of the type and number of people provided.
- It is difficult to visualize the concept of continuous service by a contractor in the event of this kind of labor agreement.
- The next subpoint.
- The payment of EPF by the employer is mandatory for those laborers who are actually working.
- In the Employees' State Insurance Act, 1948, Section 40.
- The principal employer shall pay the contribution.
- The employer contributes in respect of each employee, whether directly employed by him or by or through an immediate employer, both the employer's contribution and the employee's contribution. The principal employer is also the same under the ESI Act.
- In the argument presented, it is seen that there is a misconception as to who the actual Principal employer is in the given situation in which is the labour contractor and not the Contractor Factory. This statement is backed up with a series of case studies from the Apex Court.
- Even with ESI/PF reimbursement, the Principal Employer should still be the one to pay the Contractee Factory. This will not be permitted and will not be eligible for GST relief in any way.
- Going by the plain meaning of Sec 15 of the GST Act, and the underlying principal governing it, one cannot claim deductions of them from value and tax either as a matter of right or otherwise in a transaction or a labor contract.
- A sample ESSA/PFA agreement.
- The company will be required to sign an agreement with Contractor Factory on a proper Rs. 500/- Non-judicial stamp paper before beginning work. The cost for the license shall be shouldered by the vendor.
- Responsibilities of labor organization:
- Key Responsibilities: – I The company shall follow all the required statutory compliances, and comply with current industrial and labor regulations. laws, as amended by more recent legislation.
- The firm shall pay all applicable taxes/fees/licenses/other costs as imposed by the government.
- The firm takes responsibility for ensuring that no damage is caused to any person or other party working on the property. Should such damage occur, the firm shall make good the losses suffered by the affected parties, and pay for such loss.
- v. The contract requires the firm to indemnify the factory against all claims of any kind during the course of execution of this contract.
- Upon entering, a pass would be required for all employees due to the nature of the work. The firm will be arranging the passes and working permission despite the fact that it will be outside normal work hours. The Engineer will provide support and assistance to the Contractee.
- The firm shall maintain a Wage Register which depicts the following information for each job position: -.
- The measure used to determine how much a worker is paid for work.
- Wages paid.
- For PF and ESI, deduct from each worker.
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