Whether LLP can be considered as a Body Corporate under the provisions of the GST Act, 2017 or not?

Facts of the Case: –

The applicant M/s. AS&D Enterprise LLP is engaged in the business of providing security services to various business entities in the form of deployment of security personnel to keep ward & watch and providing safety & security of assets/installations/offices/buildings/properties/equipment etc. of the site or any other locations as may be specified by the recipient.

The applicant being registered as a Limited Liability Partnership under the Goods and Services Tax Act, 2017 seeks an Advance Ruling under Section 97(2) of the CGST Act, 2017 on whether for the security services provided by it, tax should be paid under “Forward Charge Method or Reverse Charge Method”.

The applicant contended that as per Section 2(98) of the CGST Act, under Reverse Charge Mechanism, recipient of the supply of goods or services is liable to pay tax in respect of notified categories of goods or services. Further, in exercise of the powers conferred by sub-section (3) of Section 9 of the CGST Act, the Central Government, vide Notification No. 13/2017-CT(Rate) dated 28.06.2017 as amended by Notification No. 29/2018 dated 31.12.2018, through the insertion of Sr. No. 14, notified that “Security services provided to a registered person by any person other than a body corporate shall be taxed @18% under RCM”.

As per explanation provided in Notification No. 13/2017-CT(Rate), the term “body corporate” is defined as follows:
“Body Corporate” has the same meaning as assigned to it in Clause (11) of section 2 of the Companies Act,2013.
And as per Clause (11) of section 2 of the Companies Act,2013 “body corporate” or “corporation” includes a company incorporated outside India, but does not include-
1. A co-operative society registered under any law relating to co-operative societies and
2. Any other body corporate (not being a company as defined in this Act), which the Central Government may, by Notification, specify in this behalf.
Thus, LLP is neither covered under inclusions clause nor exclusions provided in the above-mentioned provisions.

Whereas as per Limited Liability Partnership Act, 2008, LLP is treated as a body corporate since it has a separate identity and perpetual succession. This definition coincides with the meaning of the term “Body Corporate” used in general parlance treating it as an entity which has a legal existence separate from its partners.

Further, The Ministry of Corporate Affairs in “FAQS on nature of Limited Liability Partnership” has described structure of LLP as: “LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession”.

On a collective reading of the above facts and provisions, it can be stated that since LLPs are body corporates for all legal purposes and hence tax has to be provided by the applicant under Forward charge basis.

Alternatively, as per explanation (e) to Notification No. 13/2017-CTR, which describes the “Limited Liability Partnership” as partnership firm, it can be inferred that the recipient is liable to pay the tax under RCM.
On the contrary, entry 14 of the said notification makes reference to the term “Body Corporate” only without any mention of the terms “Partnership firm, Limited Liability Partnership or Firm”.

The views and explanations elaborated above created a contradictory situation, leading the applicant to seek advance ruling on the taxability of security services provided by a “Limited Liability Partnership” to be charged under “Forward charge mechanism or Reverse Charge Mechanism”.

Legal Provisions:-

Section 97(2) of the CGST Act, 2017 prescribes that Advance Ruling may be sought inter alia on the question of (b) Applicability of a notification issue under the provisions of this Act.

As per section 2(98) of the CGST Act, “reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act.

Relevant extract of Entry No.14 inserted vide Notification No. 29/2018 – dated 31.12.2018 amended Notification No. 13/2017 CTR dated 28.06.2017

Explanation- For purpose of this notification-

• (b) “Body Corporate” has the same meaning as assigned to it in clause (11) of section 2 of the Companies Act, 2013.
• (e) A “Limited Liability Partnership” formed and registered under the provisions of the Limited Liability Partnership Act, 2008 (6 of 2009) shall also be considered as a partnership firm or a firm.

“Body Corporate” has the same meaning as assigned to it in Clause (11) of section 2 of the Companies Act,2013.
As per Clause (11) of section 2 of the Companies Act,2013 “body corporate” or “corporation” includes a company incorporated outside India, but does not include-
1. A co-operative society registered under any law relating to co-operative societies and
2. Any other body corporate (not being a company as defined in this Act), which the Central Government may, by Notification, specify in this behalf.

As per Section 2(1)(d) of LLP Act,2008, “Body Corporate’ means a company as defined in clause but does not include-
1. A corporation sole,
2. A co-operative society registered under any law for the time being in force, and
3. Any other body corporate (not being a company as defined in section 3 of the Companies Act, 1956 (1 of 1956) or a limited liability partnership as defined in this Act), which the Central Government may, by Notification in the Official Gazette, specify in this behalf.

Further, section 3 of LLP Act, 2008, describes nature of any Limited Liability Partnership.
Section 3: Limited Liability Partnership to be Body Corporate: –
1. 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.
2. A limited liability partnership shall have perpetual succession.
3. Any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership.

The Ministry of Corporate Affairs in “FAQS on nature of Limited Liability Partnership” has described structure of LLP as: “LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession”.

The provisions of both the CGST Act, 2017 and HGST Act, 2017 are same except for certain provisions. Therefore, unless otherwise mentioned, a reference to the CGST Act would also mean a reference to the same provision under the HGST Act.

Judgement:

The Hon’ble AAR taking into cognizance the above- mentioned submissions of the applicant observed that “Body Corporate” has not been defined under the GST Act,2017 but with respect to explanation (b) of the Notification No. 13/2017 CTR dated 28.06.2017 as amended by Notification No. 29/2018 dated 31.12.2018, it will have the same meaning as in section 2(11) of the Companies Act, 2013.

Based on the scope of applicability of the given notification, RCM is relevant only when the security services are provided to a registered person and only when the supplier of services is any person other than a body corporate. For e.g. if a proprietary concern or a partnership firm provides security services to a registered person then RCM is applicable but if a private limited company provides such services, the same will attract forward charge instead of RCM. Alternatively, if the recipient of services is not registered, then the liability to pay tax under GST Act is on the supplier of the security services as per section 9(1) though it is not a body corporate.

Also, LLP is considered a body corporate as per section 2(d) of LLP Act, 2008.

Thus, it was held that the security services provided by the applicant LLP are not covered under entry 14 of the Notification No. 13/2017 dated 28.06.2017 as amended by Notification No. 29/2018 dated 31.12.2018 since it is a body corporate.

Consequently, reverse charge mechanism for the levy of tax under section 9(3) is not applicable in the present case, therefore tax liability arising from the said supply should be paid by the applicant under forward charge basis and not by the recipient under reverse charge basis.

Author’s View:

A plain reading of the above provisions clearly establishes that the Legislative intention behind the application of RCM is to enable the government to exercise control over the supplies made by unorganized sectors and also to safeguard them from burden of numerous compliances.

On consideration of the above facts and provisions, it can be rightly said that the view taken by the Hon’ble AAR is quite logical to treat a LLP as a body corporate and hence making it liable to pay tax under forward charge basis for the security services provided by it.

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