Security Services Provided By LLP To Registered Person Not Covered Under RCM: AAR

The Haryana Authority of Advance Ruling (AAR) has ruled that security services provided by LLP to any registered person are not covered by the Reverse Charge Mechanism (RCM) and are taxable on a forward charge basis.

The two-member bench of Sunder Lal and Kumud Singh has ruled that an LLP is a body corporate for the purpose of the Companies Act, 2013 and the same would apply to the term body corporate. As a consequence, the reverse charge mechanism would not be applicable. Moreover, the legislative intention behind the application of RCM is to those supplies in which the government or executive do not have control over the supplier or who are working in the unorganised sector. So, the RCM is made applicable to any person other than a body corporate.

The applicant is a Limited Liability Partnership Company registered under the Goods and Services Tax Act, 2017. The applicant is in the business of providing security services to various business entities situated all over India. The security services are provided in the form of the deployment of security personnel to keep ward and watch and provide safety and security of assets, installations, offices, buildings, properties, equipment, etc. of the site or any other locations as may be specified by the recipient.

As per section 2(98) of the CGST Act, "reverse charge" means the liability to pay tax by the recipient of a supply of goods or services or both, instead of the supplier of goods or services or both. Therefore, under the Reverse Charge Mechanism, the liability to pay tax is fixed on the recipient of the supply of goods or services instead of the supplier in respect of notified categories of goods or services.

Consequently, in exercise of the powers conferred by section 9(3) of the CGST Act, the Central Government, vide Notification dated 28.06.2017, notified certain categories of supply of services on which the liability to pay tax is on the recipient of such services under the reverse charge mechanism (RCM).

As per the applicant, services provided by it are taxable at the rate of 18% as per notification. The government, vide notification dated 31.12.2018, amended Notification No. 13/2017-CT(Rate) dated 28.06.2017 to insert entry No. 14. Entry No. 14 covers the supply of security services provided to a registered person.

If security services, i.e., services provided by way of supply of security personnel, are provided by any person, other than a body corporate, to a registered person, therefore, tax shall be paid on a forward charge basis by the supplier

The applicant sought an advance ruling on the issue of whether security services provided by the applicant LLP are covered by entry 14 of Notification No. 13/2017-CT(Rate) dated 28.06.2017 and liable for tax under reverse charge mechanism or not.

The AAR observed that an LLP is viewed as an alternate corporate business model that involves the integration of the advantages of a limited liability company with the flexibility of a partnership. It allows its members the flexibility of organising their internal structure as a partnership based on a mutually agreed upon mutually from the LLP Act, 2008, the main features are, inter alia, that the LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated with the purpose of carrying on a lawful business with a view to profit, may, by subscribing their names to an incorporation document and filling the same with the registrar, form a Limited Liability Partnership. It will have perpetual succession. Even if the partners opt to leave, the LLP persists. It can enter into contracts and own property in its own capacity. It is a separate legal entity having to bear the full liability for its assets, which makes it possible for partners' liability to be limited to their agreed contribution to the LLP.

Applicant's Name: AS&D Enterprise LLP

Date: 22/09/2022

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