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CESTAT: Service Tax under Reverse Charge Mechanism will not be levy on LLP’s

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a Limited Liability Partnership (LLP), being not a “Body Corporate” under section 2(7) Companies Act,2013, is not liable to pay service tax under the reverse charge mechanism (RCM).

Facts of the case:-

The appellant was rendering services including manpower supply up to 31 March 2013. For rendering the manpower supply service, they also received manpower supply services from V. Search HR Consultancy Services, a partnership firm up to 28 February 2013. The Firm was aggrieved by an order of the department have submitted inter alia, that they are incorporated as a limited liability partnership/entity under the LLP Act, 2008.

Interpretation of law & Conclusion:-

The department was of the view that the services rendered by the Firm is subject to Service Tax under the reverse charge mechanism. It was contended by the appellant that they being an LLP are not covered in ‘body corporate’ and hence not liable to pay service tax under reverse charge, as applicable to a body corporate.

Judicial Member Anil Chaudhary found that Rule 2(bc) of Service Tax Rules, refers to the meaning of ‘body corporate’ in Section 2(7) of the Companies Act, wherein any other body corporate which includes an LLP is specifically excluded from the definition of the body corporate.

“Thus I hold that the appellant as an LLP is not required to pay service tax under the reverse charge mechanism during the period under dispute. Accordingly, the impugned order is set aside. It is held that the appellant is entitled to a refund of the service tax paid erroneously under reverse charge, as per the refund application. Accordingly, the adjudicating authority is directed to grant refund within a period of 45 days from the date of receipt of a copy of this order with interest for the period starting after three months from the date of refund application till the date of grant of refund,” the Tribunal said.

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