Update on Insertion of Services under Reverse Charge Mechanism

Update on Insertion of Services under Reverse Charge Mechanism

Vide Notification no. 29/2018-Central Tax (Rate) dated 31st December 2018, government seeks to insert certain services in the notification no. 13/2017 dated 28th June 2017 pertaining to reverse charge mechanism. The following services have been included wherein reverse charge mechanism would apply: -

S.No. 12- Services provided by business facilitator (BF) to a banking company
Supplier of Service- Business facilitator (BF)
Recipient of Service- A banking company, located in the taxable territory

S.No.13- Services provided by an agent of business correspondent (BC) to business correspondent (BC)
Supplier of Service- An agent of business correspondent (BC)
Recipient of Service- A business correspondent, located in the taxable territory

S.No.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.
Supplier of Service- Any person other than a body corporate ; Recipient of Service- A registered person, located in the taxable territory

It is worth noting that if the recipient of service in case of GTA service and security service is government, local authority or governmental agencies that have taken registration only for the purpose of deducting TDS and not for making taxable supply, reverse charge mechanism would not be applicable. Furthermore, in case of security services, reverse charge mechanism is also not applicable for person who is paying tax under composition levy under GST. This distinction on the part of government, that too, for particular services is not at all understood. While assessees under composition levy are not liable to pay service tax under reverse charge mechanism for security services received from any person other than a body corporate, the said assessees are required to pay GST under reverse charge mechanism with respect to other services such as GTA, legal services.

Similarly, the government, local authority or governmental agencies that have taken registration only for the purpose of deducting TDS and not for making taxable supply are exempted from paying GST under reverse charge mechanism on GTA and security services only. However, they are required to pay GST under reverse charge mechanism on legal services received by them. The logic for providing exemption with respect to certain services only is not understandable. It appears that the intention of the government is to avoid payment of GST by the government/local authority/governmental agencies if there is no other tax liability as the input tax credit of GST paid under reverse charge mechanism would not be utilised.

However, if this is the logic, then this exception should be applicable for all services under reverse charge mechanism and not only two services.
Furthermore, the meaning of the term ‘business facilitators, body corporate has not been provided in the notification. The meaning of these terms is to be derived from general parlance as follows:-
1. “Business Facilitators are representatives appointed by banks to act as their agent and provide banking services in remote locations where the bank does not have a presence in order to promote financial inclusion.”
2. "Body Corporate includes a private company, public company, one personal company, small company, Limited Liability Partnerships, foreign company. However, body corporate does not include—
(i) a co-operative society registered under any law relating to co-operative societies; and (ii) any other body corporate (not being a company as defined in the Companies Act 2013)”

The content of this GST update is for educational purpose only and not intended for solicitation.

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Update on Insertion of Services under Reverse Charge Mechanism

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