LLP not required to pay service tax under reverse charge mechanism

SRL Advisors LLP Vs Commissioner of Central Tax Delhi (CESTAT Delhi)

Rule 2(bc) of Service Tax Rules, refers to the meaning of ‘body corporate’ in Section 2(7) of the Companies Act, wherein any other body corporate which includes a LLP is specifically excluded from the definition of body corporate. Thus I hold that the appellant as a LLP, is not required to pay service tax under the reverse charge mechanism during the period under dispute. Accordingly, the impugned order is set aside. It is held that the appellant is entitled to refund of the service tax paid erroneously under reverse charge, as per the refund application. Accordingly, the adjudicating authority is directed to grant refund within a period of 45 days from the date of receipt of a copy of this order with interest for the period starting after three months from the date of refund application till the date of grant of refund. Thus the appeal is allowed.

FULL TEXT OF THE CESTAT JUDGEMENT

The appellant – SRL Advisors LLP is registered with service tax. They filed refund application dated 2 December, 2013 on line and also dated 13 December, 2013 manually, for refund of erroneous payment of service tax amounting to Rs. 2,23,913/-. The details of which are as under :

2. The appellant have submitted inter alia, that they are incorporated as a limited liability partnership/entity under the LLP Act, 2008. They are rendering services including manpower supply up to 31 March, 2013. For rendering the manpower supply service, they also received manpower supply services from V. Search HR Consultancy Services, a partnership firm up to 28 February, 2013. Thereafter, they engaged their own employees.

3. In the verification report called for from the erstwhile Range-12, as per report dated 21 July, 2014 the range officer reported the claim is inadmissible. In the personal hearing, the appellant reiterated that they being an LLP are not covered in ‘body corporate’ and hence not liable to pay service tax under reverse charge, as applicable to a body corporate.

4. The Assistant Commissioner framed the following issues for deciding the refund claim:

(i) Whether the subject refund claim is filed within the prescribed time;

(ii) Whether the subject refund claim is admissible;

(iii) Whether all the required documents have been submitted;

(iv) Whether the principle of unjust enrichment is attracted.

It was held that refund is filed within the stipulated time limit of one year. It is further observed that the refund claim is for Rs. 2,23,913/-, paid by the appellant under reverse charge mechanism for manpower supply services. It is the contention of the appellant that as per Notification No. 30/2012 dated 20 June, 2012 they are not covered in the definition of a body corporate. The adjudicating authority relying on the definition of body corporate as per ‘Halsbury’s Law of England’ where it is defined as – a collection of individuals united into one body under a special denomination having perpetual succession under an artificial form, and vested by the policy of law the capacity of acting as an individual including to sue and, be sued. Further, observing that a body corporate is an ‘association of persons’ but has a separate identity independent of its members. Further observing that a body corporate is much wider than a company. Further reference was made to Rule 2(bc) of Service Tax Rules, wherein body corporate has been defined to have the meaning assigned to it in clause (7) of Section 2 of the Companies Act. Further, reference is made to Rule 2(cd) of Service Tax Rules says that ‘partnership firm’ includes an LLP (inserted by Notification No. 03/2012 dated 17 March, 2012). Further reference was made to clause (d) of Section 2 with reference to LLP Act, 2008 wherein Section 2(d) provides – ‘body corporate’ means a company as defined in Section 3 of the Companies Act, 1956 and includes (i) a limited liability partnership registered under this Act but does not include (i) a corporation sole; (ii) a co-operative registered under any law for the time being in force; and (iii) any other body corporate (not being a company as defined in Section 3 of the Companies Act, 1956 or a LLP as defined in this Act), which the Central Government may, by notification in the Official Gazette specify in this behalf. Further reference is made Section 3(1) of LLP Act which provides – a limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners and shall have perpetual succession, and any change in the partners of LLP shall not affect the existence, rights and/or liability of the LLP. Thus it was concluded that an LLP is a body corporate having perpetual succession and is a legal entity separate from its partners. Further reference was made to Rule 2(cd) of Service Tax Rules, wherein it is provided that a partnership includes a LLP for the purpose of giving concessions as to periodicity of payment of service tax, filing of returns etc. Further holding that Rule 2(cd) of Service Tax Rules does not say that LLP is not a body corporate, and accordingly, it is held liable to pay service tax under the reverse charge mechanism. It was further held that unjust enrichment is not attracted. Accordingly, the refund claim was rejected.

5. Being aggrieved, the appellant preferred appeal before the Commissioner (Appeals) who referred to the Notification No. 30/2012-ST wherein it is provided that whether a body corporate receives input service from a partnership firm which includes a LLP, would attract the reverse charge method. Further, it was observed that clause 7 of the Section 2 of the Companies Act, 1956 read with Rule 2(bc) of Service Tax Rules provides that a body corporate or corporation does not include any other body corporate – not being a company as defined in the Companies Act. Further Rule 2(d) of LLP Act also provides a body corporate means a company as defined in Section 3 of the Companies Act, 1956 and includes an LLP registered under the Companies Act. Further reference was made to Notification No. 03/2012-ST which provides that the facility of deferred payment is allowed to partnership firms including LLP.

However, the Commissioner (Appeals) was pleased to reject the appeal.

6. Being aggrieved, the appellant is in appeal inter alia, on the ground that the Court below have mis-directed itself in interpreting the provisions read with the notification inasmuch as the Commissioner (Appeals) have considered a LLP to be a partnership firm only for the limited purpose of compliance of Rule 6 of the Service Tax Rules. Further Commissioner (Appeals) have erred in ignoring the definition under Rule 2(1) which applied both Rule 2(1b), which defines a person liable to pay service tax as per Rule 6, both being part of the same rules – Service Tax Rules. The contention of the learned Commissioner (Appeals) that the intention of Central Government to consider LLP as a partnership firm is only for the limited purpose of compliance of Rule 6, is without any basis and based on surmises. It is further urged that reliance placed by the Commissioner (Appeals) on the ruling of Delhi High Court in the case of J.K. Mittal & Company Vs. Union of India – 2017 (352) ELT 430 (Del.) is mis-placed as in instant decision LLP along with individuals and partnership firms have been considered for the purpose of reverse charge and not as a body corporate for services rendered to a business entity.

7. Learned Departmental Representative relies on the impugned order.

8. Having considered the rival contentions, I find that Rule 2(bc) of Service Tax Rules, refers to the meaning of ‘body corporate’ in Section 2(7) of the Companies Act, wherein any other body corporate which includes a LLP is specifically excluded from the definition of body corporate. Thus I hold that the appellant as a LLP, is not required to pay service tax under the reverse charge mechanism during the period under dispute. Accordingly, the impugned order is set aside. It is held that the appellant is entitled to refund of the service tax paid erroneously under reverse charge, as per the refund application. Accordingly, the adjudicating authority is directed to grant refund within a period of 45 days from the date of receipt of a copy of this order with interest for the period starting after three months from the date of refund application till the date of grant of refund. Thus the appeal is allowed.

(Pronounced in Court on 28.07.2021)