Advocate S. N. Kapoor*
Security service is a service wherein a person supplies security personnel to another person for a consideration. Earlier in Service tax regime, security services provided by individual, HUF or partnership firm to a body corporate were covered under Reverse Charge Mechanism (RCM). However, with the enactment of GST Act, 2017 the concept of RCM on security services was abolished and the supplier of security service was made liable to pay GST.
That considering the numerous problems in tax collection from small security service providers, such service has been brought under the purview of RCM. Hence, RCM on Security Services has been introduced in GST by the Government vide Notification No. 29/2018-Central Tax (Rate) dated 31.12.2018. with effect from 01.01.2019, any registered person receiving Security services (services provided by way of supply of security personnel) from any person other than a body corporate is required to pay GST on RCM basis.
With the aforesaid amendment, requiring the service recipient would be liable to pay tax under RCM w.e.f. 01st January, 2019, the confusion had come up in the industry as to who would be liable to pay tax for supplies made during the transition phase i.e. in cases, wherein security service has been rendered upto 31st December, 2018, however, neither the invoice has been issued nor payment has been received till that date. The moot point arises as to who would be liable to pay tax in such cases.
In order to clarify, the above raised issue let us now refer to the provisions of GST Act, 2017 (CGST/SGST Act). Further, Section 9(1) of the Act states that GST is levied on ‘supply’ and shall be paid by a taxable person. In case of supply of services, the time at which the liability to pay tax arises is determined as per the provisions contained in Section 13 of the Act: Time of Supply of services.
On examination of the relevant provisions of GST Act, 2017, it is apparent that prior to determining the ‘time of supply of a service’, one has to determine whether tax is to be paid by supplier or a recipient on reverse charge basis as Section 13(1) would cover cases of forward charge and Section 13(2) would cover reverse charge situations. Further, Government using the powers of Section 9(3) specifies the categories of supplies on which recipient shall be liable to pay tax on RCM. Once the person liable to pay tax is assessed, ‘time of supply’ provisions would be applied accordingly.
In the instant case, the Government brought into effect RCM on security services w.e.f. 01st January, 2019, meaning thereby from the said date, the time of supply of security service would be governed by Section 13(2). Hence, in case any of the conditions laid under Section 13(1) gets fulfilled upto 31st December, 2018, the supplier of the service would pay tax. The cases wherein supply was completed by 31st December, 2018, however neither of the condition of Section 13(1) got satisfied upto 31st December, 2018, the provisions of Section 13(2) pertaining to time of supply of services covered under RCM would apply and the recipient would pay tax accordingly.
Further to illustrate, if an assessee has entered in a monthly retainer agreement of security service, the supplier raises invoice on every 7th of the month succeeding the month of rendering service and receives payment thereafter. For the services rendered during December, 2018 the invoice would be raised on 7th, January, 2019 and payment would be received thereafter. In such a case, RCM would apply and the service recipient would be liable to pay tax at the time of supply as determined under Section 13(2).
However, Government Department/Establishment/Agency who have taken registration under GST only for TDS purpose and those paying tax under Section 10 (Composition Scheme) are not required to pay GST on RCM basis. Therefore, if any registered person is receiving security services from any security agency (other than body corporate) he is required to pay GST on RCM basis w.e.f. 01.01.2019.
* (Author Adv. S. N. Kapoor is Consultant & Advisor:- GST, Customs & EXIM)