Whether liable to pay GST on the portion of the payment received on account of the bonus paid or payable to the persons it deploys as security personnel?

PJ/Case Law/2019-2020/3593

EX-SERVICEMEN RESETTLEMENT SOCIETY(GST AAR West Bengal) Order no. 35/WBAAR/2019-20 dated 29/11/2019
Issue:- Whether liable to pay GST on the portion of the payment received on account of the bonus paid or payable to the persons it deploys as security personnel?

Brief Facts: - The Applicant, stated to be a registered society providing security services and scavenging services to various hospitals under the State Government. The Applicant classifies its service under SAC 998525. It includes providing protective services through hired personnel to ensure the safety of people or property by guarding them against fire, theft, vandalism or illegal entry, such as security guard services. It appears from the Agreement that the Applicant provides a specific number of security personnel from among ex-servicemen for round the clock security job.

Appellant’s Contention:-In Memo No. 3790-F(Y) dated 21/0712014, the Finance (Audit) Department of the State Government clarifies that the monthly charges payable to the private security agencies deployed in Government establishments has two parts – (i) service charge and (ii) security charge. The service charge is determined based on L1 bid and remains fixed for the period of the service contract. The security charge is the minimum wages for the security personnel, their entitlements to ESI, EPF and Bonus, as applicable. It is variable according to the minimum wages stipulated by the State Government from time to time.
The Applicant accordingly claims the minimum wages, employer’s portion of EPF, ESI etc. on its bill for monthly charges and charges GST on the gross amount, including the security charges. In its Memo No. HF/0/MS/273NV-148/2015 dated 28/10/2016, Health & Family Welfare Department of the State Government directs that the contractual security personnel be paid Bonus @ 8.33% once in a year. The Applicant, therefore, makes separate bill for claiming the Bonus amount. No GST, however, is charged on such Bonus bills.

Reasoning of Advance Ruling:- The Applicant can recruit, deploy, withdraw or replace any security personnel, provided the recipient is kept informed. It is not a manpower recruitment agency. The State Government is not recruiting any security personnel through the Applicant. The latter is the employer of the security personnel deployed and is responsible for paying all statutory dues, including employer’s contribution to EPF, ESI etc.
Employer’s contribution to EPF, ESI etc. and payment of Bonus at the Government approved rate are, therefore, components of the Applicant’s expenditure. It is entitled to pass this liability to the recipient, who, in terms of the Agreement, is apparently ready to bear that liability. Such an agreement, however, does not create a master and servant relationship between the recipient of the service and the security personnel [Security Agencies Association vs Union of India; (2013) 58 VST 295 (Kerala)]. Payment received from the recipient on account of the bonus paid or payable to the persons deployed as security personnel is not, therefore, guided by Para 1 of Schedule III.
The Applicant is, therefore, liable to pay GST on the portion of the payment received on account of the bonus paid or payable to the persons it deploys as security personnel.

Conclusion: - Activities which shall be treated neither as a supply of goods nor a supply of services is not covered when two parties has not servant and master relationship then applicant is liable to pay GST on the payment received for bonus amount which was indirectly paid to security personnel.

Prepared by CA Mahesh Parmar

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PJ/Case Law/2019-2020/3593

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