October 09, 2025 : The Kerala Authority for Advance Ruling (AAR) has held that Goods and Services Tax (GST) is payable on amounts paid by the Vikram Sarabhai Space Centre (VSSC) to a manpower supplier during the COVID-19 lockdown, even though the outsourced personnel did not perform any physical duties during that period.
The ruling was delivered by a Bench comprising Jomy Jacob, IRS, Additional Commissioner of Central Tax, and Mansur M.I., Joint Commissioner of State Tax, on an application filed by The Kerala State Ex-Service League, a charitable society engaged in supplying ex-servicemen as manpower to government departments and public institutions.
The issue arose from payments received by the applicant from VSSC for the period between 23 March 2020 and 31 May 2020, when operations were suspended due to the nationwide lockdown. The applicant had supplied personnel such as office drivers, messengers, and medical attendants to VSSC under an existing manpower supply contract. During the lockdown, VSSC released wages and interim payments in line with Office Memorandums issued by the Ministry of Finance, which directed that outsourced staff be treated as “on duty” and paid wages despite being unable to report for work.
The applicant argued that since no services were actually rendered, the amounts received could not be treated as consideration for supply of services and therefore fell outside the scope of GST. It was further contended that the payments were in the nature of interim financial support or welfare assistance to employees, especially as the entire amount received from VSSC was passed on to the workers without any retention or commission.
The Authority rejected these submissions. On examining the contractual terms, the AAR noted that the manpower supply agreement between the applicant and VSSC remained in force throughout the lockdown period. The Office Memorandums issued by the Ministry of Finance did not characterise the payments as ex gratia or compensation but expressly treated the lockdown period as “on duty” for outsourced personnel.
The AAR observed that the absence of physical work did not change the nature of the contractual relationship. Since the payments were made under a subsisting manpower supply contract, they constituted consideration for supply of manpower services under Sections 7 and 15 of the Central Goods and Services Tax Act, 2017. The Authority further clarified that GST on manpower recruitment or supply services is payable on the total consideration received, including wages and staff costs, irrespective of whether the service recipient directly or indirectly bears those costs.
It was also held that the fact that the entire amount was disbursed to employees did not affect the taxability of the supply. The legal fiction created by the government directives treating outsourced staff as “on duty” preserved the contractual quid pro quo and did not convert the payments into welfare assistance.
The AAR additionally ruled that no exemption under Notification No. 12/2017–Central Tax (Rate) was applicable, as there is no specific GST exemption for manpower services during the lockdown period. Consequently, GST was held to be leviable at the applicable rate on the full amount received from VSSC.
Accordingly, the Kerala AAR concluded that GST is payable on wages and interim payments received by the manpower supplier from VSSC during the COVID-19 lockdown, notwithstanding the fact that no physical services were rendered, and directed that the tax liability be regularised in accordance with law.
