RCM Does Not Tax LLP Security Services, Claims AAR
October 4, 2022
The Haryana Authority of Advance Rulings (AAR) recently claimed that Security Services performed by a Limited Liability Partnership are not taxed under the Reverse Charge Mechanism (RCM).
The applicant seeked judgment that was registered as a Limited Liability Partnership under the Goods and Services Tax (GST) Act of 2017 and engaged in providing security services to other firms. The petitioner, AS & D Enterprise LLP, requested an Advance Ruling from the Haryana AAR under Section 97(2) of the Central Goods and Services Tax Act (CGST Act), 2017.
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Everything About Reverse Charge Mechanism Under GST
The two-member bench members, Sunder Lal and Kumud Singh stated that an LLP is a body corporate for a specific purpose of the Companies Act, 2013, and that the term body corporate would apply similarly. Thus, the Reverse Charge Mechanism (RCM) would be futile.
In addition, the sole purpose and application of RCM is to those supplies over whom the government or administration has no authority or who works in the unorganized sector. Therefore, the RCM, also known as the Reverse Charge Mechanism is applicable to everyone who is not a body corporate.
In the beginning it was mentioned that the applicant is a Limited Liability Partnership Company that is registered under the 2017 Goods and Services Tax Act. The applicant provides security services to various organizations across India. The security services are offered in the form of deployment of security experts to maintain ward and watch to offer safety and security of the site’s assets, installations, offices, buildings, properties, equipment, etc.
According to the Section 2(98) of the CGST Act, the term ‘reverse charge’ refers to the need to pay tax by the recipient of a supply of goods or services or both, rather than the provider of goods or services or both.
As a result, under the Reverse Charge Mechanism, the recipient of the supply of goods or services bears the tax burden rather than the provider in the case of notified categories of goods or services.
Eligibility of the Applicant to Request an Advance Ruling
While exercising the powers given by section 9(3) of the CGST Act, the Central Government mentioned certain types of supply of services on which the receiver is liable to pay tax through the reverse charge mechanism (RCM) in a Notification dated 28.06.2017.
According to the applicant, the services provided are taxed at the rate of 18% per notification. The government revised Notification No. 13/2017-CT (Rated) dated 28.06.2017 by notification dated 31.12.2018 to introduce Entry No. 14 deals with the provision of security services to a registered person.
If any individual, apart from a body corporate, provides security services to a registered person, tax is payable on a forward charge basis by the supplier.
The applicant requested an early judgment on whether the applicant Limited Liability Partnership’s security services are covered by entry 14 Notification Np. 13/2017 – CT (Rate) dated 28.06.2017 and chargeable for tax under the Reverse Charge Mechanism (RCM).
However, the AAR believes that the main feature of the LLP Act, 2008 should be a body corporate and a legal entity independent from its partners among many other things.