Service Tax Reverse Charges Mechanism for LLPs

CA Pankaj Kumar Agrawal 

Analysis on Service Tax Reverse Charges Mechanism (RCM)  for Limited Liability Partnerships (LLPs)/ Critical Analysis on RCM in Service Tax for LLP after change in definition of Body Corporate.
Introduction :-

The Definition of Body Corporate is amended on 12-Sep-2013 vide circular issued by MCA on account of applicability of Companies Act 2013.

So Can a LLP be Considered as Body Corporate as per the same for Service Tax  and not liable to be paid under RCM or Does it have no  impact on the same and service Tax under Reverse Charges  (RCH) is required to paid for the same ?

Legal background:

♣  Service Tax:-

• Dr. Manmohan Singh, the then Union Finance Minister, in his Budget speech for the year 1994-95 introduced the new concept of Service Tax.
• The definition of “body corporate” was framed in the rules in 1994 even before the concept of LLP was not enforced in India.
• The Service tax Rules, 1994 is amended by Service tax (Amendment) Rules, 2012 to make clear the intention of law with respect to considering LLP as partnership firm.
• The clause has been added in Rule 2 as follows “(cd) “partnership firm” includes a limited liability partnership;” with effect from 1st April, 2012 vide Notification No. 3/2012 – ST  dated 17th March, 2012
• From above, it is self explanatory that from 1st April, 2012, LLP should be considered as Partnership firm i.e. Firms includes LLP
• Provisions relating to reverse charge are contained in Notification No. 30/2012 ­ST dated 20­-06­-2012. See Appendix 2 for tax of the Notification and amended from time to time

♣   The Companies Act, 1956:-

• Definition of “body corporate” or “corporation” as per Companies Act, 1956 includes 

A company incorporated outside India but does not include –

(a) a corporation sole ;

(b) a cooperative society registered under any law relating to cooperative societies ; and

(c) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf.

From the above definition it is clear that the LLP is not included in the definition of body corporate.

♣  The Companies Act, 2013:-

• Definition of “body corporate” or “corporation” as per Companies Act, 2013 includes

A company incorporated outside India, but does not include—

a) a cooperative society registered under any law relating to cooperative societies; and

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

Definition of company as per Companies Act, 2013 “company” means a company incorporated under this Act or under any previous company law;

♣ CHAPTER XXI PART I —

Companies Authorized to Register under this Act

For the purposes of this Part, the word “company” includes partnership firm, limited liability partnership, cooperative society, society or any other business entity formed under any other law for the time being in force which applies for registration under this Part.

From this it is clear that, the registration with ROC is meant for legal administration and regulation purposes only.

Preface of LLP in India:

In India, The Limited Liability Partnership Act, 2008 was published in the official Gazette of India on January 9, 2009 and has been notified with effect from 31st March, 2009.

CONCLUSION:

For the purpose of service tax applicability, the relevant extract to be referred in the context “Service Tax Rules, 1994”.

In the Context of Companies Act

 The meaning of “Body corporate” has assigned to it in clause (7) of section 2 of the Companies Act,1956 (1 of 1956)”. Whereby the definition of body corporate in Companies Act, 1956 does not include LLP.

This is the first instance that makes clear that LLP is not body corporate for the purpose of service tax.

In the Context of Service Tax

Further the intention of law is made explicit by adding the clause (cd) as mentioned above in service tax rules.

As per the amended rules 2012 partnership includes LLP w.e.f. 1/4/2012 (Notification 3/2012 – ST).

This is the second instance that makes clear that the service tax law intends to treat LLP as partnership firm for the purpose of service tax implication w.e.f. 1/4/2012.

Thus the legal status for LLP is partnership firm for the purpose of service tax regime.

“Body Corporate” means the meaning assigned to in clause (7) of Section 2 of the Companies Act, 1956 and section 2(11) of 2013 Act.

a)         Company , corporation and LLP are ‘body corporate’

b)         Firm, HUF, Trust and Co-operative society are not ‘body corporate’

c)         But firm includes LLP for Service Tax

So, the service tax on reverse charges mechanism shall be discharged by LLP also.

(Author can be reached at caagrawalpankaj@gmail.com)

Click here to Read Other Articles of CA Pankaj Kumar Agrawal