RCM on supply of Security Services

Reverse Charge Liability on supply of security services (security personnel)

Reverse charge mechanism (RCM) basically imposes the obligation on the recipient of services to discharge the tax liability. In this article we have highlighted the issue on whether RCM shall be applicable for supply of services by an LLP to a registered person.

GST on services by way of supply of security personnel has been brought under the scope of RCM from 01^st January 2019 through Notification No. 29/2018-Central Tax (Rate).

The relevant excerpt of the said notification is as follows:

Sl. No.	Nature of supply of service	Supplier of service	Recipient of service
14	Security services (services provided by way of supply of security personnel) provided to a registered person: Provided that nothing contained in this entry shall apply to, – (i) (a) A Department or Establishment of the Central Government or State Government or Union territory; or (b) local authority; or (c) Governmental agencies; which has taken  registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 of the said Act and not for making a taxable supply   of goods or services; or (ii) a registered person paying tax under section 10 of the said Act.	Any person other than a body corporate	A registered person, located in the taxable territory.

What constitutes body corporate?

As per Companies Act, 2013 “body corporate” or “corporation” includes a company incorporated outside India, but does not include-

(i) a co-operative society registered under any law relating to co-operative societies;

and

(ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by Notification, specify in this behalf

Hence individuals, HUF, AOP, BOI, co-operative societies or firm shall be out of the purview of body corporate.

Cases where tax shall be discharged under forward charge instead of RCM:

• RCM shall be applicable only on providing of services of security personnel. However, supply of other security services such as installation of CCTV, sniffer dog services etc. shall not come under RCM.
• Supply of services to an unregistered person.
• Supply of services to composition dealers.
• Supply of services by a body corporate.
• Supply of services to Government agencies who have got themselves registered under the scope of this act for the purpose of deduction of TDS.

Discharge of tax liability and eligibility to claim ITC under RCM:

It is important to note that the tax liability under RCM shall be discharged through cash only and shall not be eligible to settle the same through debiting the credit ledger. Registration under the GST laws shall be compulsory, irrespective of the threshold limit for those liable to discharge tax under reverse charge mechanism. However, in the particular context when supplying to an unregistered person the requirement of compulsory registration would not arise. The recipient shall be eligible to claim the input tax credit for the amount discharged. Credit shall be availed upon discharge of tax liability under reverse charge.

Latest Updates:

Advance Ruling: M/s AS&D Enterprise LLP, (GST AAR Haryana)

Facts of the case:

The applicant being a Limited Liability Partnership (LLP) is engaged in the supply of security personnel’s (manpower) to various business entities at various locations as per the recipient’s requirement.

Question of Law:

The applicant being an LLP wanted to understand whether it would be treated as a body corporate and whether supply of security personnel by them would be taxed under forward charge instead of RCM.

What has Haryana AAR held in the present case:

The Haryana AAR (Authority for Advance Ruling) has come up with the following observations:

(a) An LLP is being considered as a body corporate as per Section 2(d) of LLP Act, 2008.

(b) LLP is a separate legal entity having to bear the full liability for its assets making it possible for partner’s liability to be limited to their agreed contribution to the LLP.

(c) The LLP Act, 2008 confers powers on the central government to apply provisions of Companies Act as appropriate.

Hence the Haryana AAR, has pronounced to include LLP within the term of body corporate for the purpose of notification No. 29/2018-Central Tax (Rate) and therefore RCM shall not apply for supply of service of security personnel to a registered person by LLP.

Our Comments:

As per Sec 2(98) of the CGST Act, 2017, RCM means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub- section (4) of section 5 of the Integrated Goods and Services Tax Act. Previously as per industry practice the supply of service by an LLP to a body corporate was considered under RCM services, however the same has now been clarified through this latest AAR to include the same as taxable under forward charge.

Note: An advance ruling pronounced by AAR or AAAR shall be binding only on the applicant and on the concerned officer or the jurisdictional officer in respect of the applicant. Any future litigation may be avoided by applying this AAR as a conservative approach.

Encl: Copy of Advance Ruling

Published By:- CA Ramnath M. Shanbhag

Disclaimer: The facts and opinions written in this column are those of the author and have been prepared based on relevant provisions and information available at the time of preparation. The article does not constitute any professional advice or a formal recommendation. The author has undertaken the utmost care to disseminate true and correct views and does not accept liability of any errors or omissions.