GST Update on valuation of security services

GST Update on valuation of security services
The supply of security services has been recently brought under the ambit of reverse charge mechanism vide notification no. 29/2018-Central Tax (Rate) dated 31.12.2018. The entry reads as follows:-

*Sl. No.*	*Category of Supply of Services*	*Supplier of service*	*Recipient of Service*
14	Security services (services provided by way of supply of security personnel) provided to a registered person: Provided that nothing contained in this entry shall apply to, - (i) (a) a Department or Establishment of the Central Government or State Government or Union territory; or (b) local authority; or (c) Governmental agencies; which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 of the said Act and not for making a taxable supply of goods or services; or (ii) a registered person paying tax under section 10 of the said Act.	Any person other than a body corporate	A registered person, located in the taxable territory.

The security services were covered under the reverse charge mechanism under the negative list era too. However, under the service tax regime, reverse charge mechanism was applicable when the service recipeint was body corporate. But, in the GST regime, the reverse charge mechanism is applicable only if the provider of service is any person other than body corporate thereby meaning that the reverse charge would not apply if the security service provider is a body corporate. Therefore, the parameter for applicability of reverse charge mechanism has been changed in the GST regime as compared to the erstwhile taxation regime. Furthermore, exceptions have been provided wherein the reverse charge mechanism would not apply such as composition taxpayers and government departments registered only for the purpose of TDS. Hence, a material departure is observed in the provisions of reverse charge mechanism introduced w.e.f. 1.1.2019 with respect to security services.
The second issue which needs to be considered is the valuation of service for the purpose of reverse charge. It is worth mentioning here that the supply of security services involves supply of security guards/personnel etc. and the question arises is whether the cost of salary and other contributions like PF, ESI etc are included in the taxable value of service? In the erstwhile taxation regime, there was clarification issued by the Board vide Circular No. B1/6/2005-TRU dt 27.07.2005 wherein it was held that the total costs including salary, contributions etc. paid to the staff, even directly and not reimbursed by the recipient of service is to be included in the gross amount for the purpose of levying service tax. However, there is no such clarification in the GST regime. Therefore, there is no clarity as regards inclusion of the salary of security guards for the purpose of paying GST under reverse charge mechanism. One may argue that since the provisions of GST regime with respect to reverse charge mechanism have substantially changed for security services, the clarification issued in the erstwhile service tax regime would not have relevance in the present context. The government should issue a clarification on the valuation aspect at the earliest possible to avoid unnecessary dispute and litigation.

The content of this GST update is for educational purpose only and not intended for solicitation.
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GST Update on valuation of security services

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