To make you prepare with recent notifications we would like to bring into notice for our readers that , Central Board of Indirect Taxes and Customs (‘CBIC’) had issued Notification No. 29/2018 Central Tax (Rate) dated 31st December 2018, said Notification make further amendments in the Notification No. 13/2017- Central Tax (Rate), dated 28th June 2017, same notification has from 1st January 2019 has bring Security services under the ambit of Reverse charge mechanism.

Notification Explanation
Notification No. 29/2018 Central Tax (Rate) dated 31st December 2018
Notification shall come into force on 1st January 2019
Entry No. 14 Security services- Reverse Charge Mechanism

Security services provided by any Person other than Body Corporate to a Registered Person located in taxable territory shall be liable to Reverse Charge Mechanism i.e. recipient of services is liable to discharge tax liability on same

Provided further that nothing contained in this entry shall apply to:

• Department or Establishment of the Central Government or State Government or Union territory; or Local authority; or 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)

• A registered person paying tax under section 10 of the said Act (Composite dealer).

Likewise, said Notification clarifies that Companies Act, 2013 shall be referred for determining that what class of person shall fall under the definition of Body Corporate

Security services provided by any Person other than Body Corporate:

As per sub section (11) of section (2) of Companies Act, 2013 “body corporate” or “corporation” includes a company incorporated outside India, but does not include Co-operative societies or any other Body corporate specify central government in this behalf.

As per my opinion above definition, does not provide a clear picture that what classes of registered person shall be classified as Body Corporate, so as per our interpretation of above definition following class of registered person should fall under category of Body Corporate: –

  • Company
  • Limited Liability Partnership (Limited Liability Partnership is defined as Body Corporate under Limited Liability Partnership Act, 2008)
  • Any corporation or company incorporated under the laws of country outside India

Likewise following table shall be helpful in classifying Security Services that whether Reverse charge or normal charge shall be applicable in situations mentioned below: –

Service provider Service Recipient RCM/Forward Charge (FCM)
Company Registered Person FCM
Limited Liability Partnership Registered Person FCM
Corporation or Company incorporated under the laws of country outside India Registered Person FCM
Individual Registered Person RCM
Hindu Undivided Family Registered Person RCM
Firm Registered Person RCM

Registered/Unregistered Supplier

For, further clarifications we would like to through light on applicability of Reverse Charge when Supplier of Security Services is unregistered, as per Notification Any person other than Body Corporate providing security services will fall under reverse charge, if Any person ( Individual, HUF, Firm ) is unregistered and supplying security services to registered person then also Reverse Charge would be applicable accordingly Security Services provided by Body Corporate whether registered or not, reverse charge would not be applicable.

Explanation to above clarification is based on wordings of notification as there is nowhere mentioned that supplier should be registered therefore it is likely to assume that focus of notification is that recipient should be registered and supplier can be registered or not, also as per Notification No. 5/2017- central tax a person making taxable supplies of goods and services which are liable to Reverse charge is not required to obtain registration, likewise in above case supplier other than body corporate if unregistered will still be liable to reverse charge

ITC Implications:

For, further clarifications said notifications is applicable only when services are providing to registered person in taxable territory, likewise if services are provided to unregistered person or person who are not required to obtain registration like hospitals, it would lead to loss of ITC for such hospitals and tax paid shall be part of cost of such services provided

To identify these transactions, whether RCM is applicable or not, the following process might help:

  • As you are aware, GSTIN includes PAN no of the registered person also.
  • Further, 4th character of PAN i.e. 6th character of GSTIN represent the status of registered person whether such person is HUF or Firm or company etc.
  • Likewise, security services provide by Body corporate can be determined through identifying characters in GSTIN, following characters specify different class of Register Person
  • C – Company
  • E – Limited liability Partnership
  • F – Firm
  • G – Government
  • H – Hindu Undivided Family
  • L – Local Authority
  • P – Individual (Proprietor)

Therefore, if the 6th Character of GSTIN of Security service provider is “P” or “F” or “H”, etc. (other than body corporate), then RCM would be applicable.

Conclusion: For conclusion we would like to suggest certain clarifications which can be provided in said notification regarding person falling under Body corporate which would be helpful for user to classify transaction accordingly. Whether notification has positive or negative implications on class of registered person to which is applicable will come into picture over a period of time, also industry now need to determine whether said notifications has been a relief or still puts industry into messy hole.

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Qualification: CA in Job / Business
Company: Grant Thornton
Location: Pune, Maharashtra, IN
Member Since: 13 Feb 2019 | Total Posts: 1

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6 Comments

  1. rakesh says:

    What if Security services are provided by registered person other than body corporate to unregistered person, Did they liable to GST under FCM only or RCM?

  2. Rakesh says:

    What if Security services are provided by register person other than body corporate to unregistered person, is he liable to reverse charge RCM or FCM?

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