Service Tax on Labour Charges

[Guest]

Sir,

Our is LLP firm engaged in iron & steel fabrication work for turnkey projects.

We have engaged one fabrication unit (proprietor) to do some fabrication work, we supply material to them for fabrication [after that we directly transferred that fabricated structure to our turnkey project location]

That unit charges us by giving bill of labour charges only. So the question is whether service tax is chargeable under RCM?

Also if yes, in any case, can we shift the burden of service tax payment on service provider?

Note : All design for fabrication work was provided by us, but all labour work under direction of service provider only.

[JSW CEMENTLIMITED]

If an individual is providing services to a LLP, service tax need to be charged by individual himself. Reverse charge is applicable in case individual or LLP is providing services to a body corporate or limited company or private limited company.

[Ganeshan Kalyani]

Sir, Limited Liability Partnership is a Body Corporate as per Sextion 3 (1) of Limited Liability Partnership Act, 2008. In view of the same, i welcome your views Sir. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Yes, Sir. LLP is a body corporate.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

As per Rule 2 (cd) of Service Tax Rules, 1994, Partnership includes a limited liability partnership.

Is there a clash between the ST Rules and Section 3(1) of Limited Liability Partnership Act, 2008 ? What is factual position ? I am layman about Company Act and Partnership Act.

[Ganeshan Kalyani]

Sir, Limited Liability Partnership Act gives an esssense of Company to Partnership Firm. LLP is a separate legal entity with no effect of change in partners on existence, rights or liabilities of the LLP. Under Companies Act, Company includes LLP.

Sir, For Service Tax purpose LLP is a Partnership Firm as per Rule 2 (cd) of Service Tax Rules, 1994 as rightly mentioned by you.

In my view for payment of service tax, Service tax rules need to be referred and as per the same LLP is a Partnership Firm. Thanks.

[Guest]

Thanks sirs for this wonderful discussion on each aspect this issue in wide details. Now my problem is solved. I follow service tax rules for payment of service tax by setting aside what company law stipulates.

[KASTURI SETHI]

Sh.Arjun Vyas Ji,

Right decision taken by you. It is just for your information that if liability of ST is on Service Provider he must pay ST and if liability is cast upon Service Receiver, Service Receiver must pay. SP cannot discharge ST liability of SR and vice versa. It is seen that sometimes SP and SR executes an agreement to the effect that the whole ST is paid either by SP or SR. This is totally wrong in the eyes of ST law.

[Ganeshan Kalyani]

Sir, I agree with your views in toto. Thanks.

AI Summary

Reverse charge applicability: services from individuals to LLPs do not trigger reverse charge; provider must discharge service tax. Under Service Tax Rules a limited liability partnership is treated as a partnership, so services from an individual proprietorship to an LLP do not attract the reverse charge applying to services to a body corporate; the individual provider must charge and discharge service tax unless law specifically casts liability on the recipient, and contractual allocation of payment does not change statutory liability.