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:-
♣ The Companies Act, 1956:-
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:-
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)
ok
LLP is a Body Corporate which is different from Normal Partnership firm
LLP is a Body Corporate only.
IS CO-OPERATIVE SOCIETY A BODY CORPORATE, WITHIN THE MEANING OF BODY CORPORATE UNDER SERVICE TAX LAWS?
As per the Service Tax Rules,1994 clause (cd) of Rule 2 clearly states that partnership firm includes a limited liability partnership.
As per the rules of interpretation of law whenever there is anything specifically mentioned in the act and rules made there under it self than meaning can not be derived from other act.
In case of body corporate under service tax it is specifically mentioned that it is defined as per companies act only. Even the companies act is specifically applicable to company as defied under the act and hence same can not covered limited liability partnership under them and accordingly in my opinion LLP shall be clearly out of scope and there can not be any demand under RCM on llp by treating same as body corporate.
Analyzed well but ambiguity in explanation and conclusion
I believe in case of Service Tax, we have to treat LLP as a Body Corporate unless it is mentioned in the specific Notification that LLP shall be treated as Partnership.
As per LLP act, it clearly mention that LLP is a body corporate.
mca.gov.in/Ministry/actsbills/pdf/LLP_Act_2008_15jan2009.pdf
I do not understand why in the last part its written service tax under joint charge has to be discharged by LLP. It is quite clear from the definition given in service tax law that firm include LLP, so there is no question of payment of service tax by LLP as service recipient for services covered under joint charge (partial reverse charge.
The only reverse charge liability it needs to discharge is under Legal Service as it is a business entity.
Dear Pankaj Sir,
I am bit confused as to what is the conclusion from the above, correct me if I am wrong. For service tax application under RCM, LLP is to be considered as Partnership Firm and all rules that apply to firm will apply to LLP.
Thanks.
Nice
nicely explained