RCM on Supply of Service by Government, Goods and Services Tax - GST

[Muthukumar Muthunarasimhan]

Dear Experts,

As per the provisions of GST , the following two services are comes under RCM category to discharge the GST liabilities?

1. EPF administrative charges paid by the employer.

2. Advance Authorization fee paid by the applicant.

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

In my opinion EPF administrative charges paid by the employer and Advance Authorization fee paid by the applicant are statutory fees. They cannot be treated as consideration for providing any service. therefore they are not liable to gst.

[KASTURI SETHI]

In Chandigarh zone, the A.G. Office (wing of CAG) has raised objection on the ground that both types of charges are non-statutory fee. Both are non-statutory charges. In my view RCM is applicable to EPF charges being charged/paid under the category of Manpower supply pertaining to pre-GST era. Now Security Service is under RCM. GST is also applicable on EPF charges under GST. In my view, DGFT fee is non-statutory fee but it does not fall under RCM. These are my views.

[KASTURI SETHI]

In continuation of my reply dated 31.8.2019, there is conflict. I want to bring one Trade Notice to your notice which pertains to the period prior to GST but has relevance here.

Trade Notice No. 5/98-Service Tax, dated 14-10-1998 of the Indore Commissionerate

F. Security Agencies

(i) As per the provisions of Section 65(40), “security agency” means any commercial concern engaged in the business of rendering services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of any investigation, detection or verification, of any fact or activity, whether of a personal nature or otherwise, including the services of providing security personnel. The ambit of the term security agency is wide enough to include not only agencies rendering services of providing security but also detective agencies which are providing confidential services in respect of say, financial credibility of any person, trade mark/ copyright infringements etc. Most of the security agencies are only registered under the Shops and Establishments Act. These agencies may not be required to take a licence under any other statutes.

(ii) An issue that has been raised is whether service tax is leviable on the entire amount charged to the clients to whom security guards/personnel have been provided as the bulk of the charges represent salary to the employee (at least the minimum wage prescribed under the law), employer’s ESI and EPF contribution, income tax deduction at source, payment towards professional tax and labour welfare fund and other non-statutory charges such as bonus, leave, uniforms, incidental expenses and other administrative and miscellaneous expenses. It is clarified that no such abatement from the amount charged to the client for services rendered is available for purpose of computing the service tax liability. However, abatement in respect of statutory levies and taxes can be granted provided the same has some direct relation with the services rendered to the client and is hence specifically billed to the client and is reimbursable by the client on an actual basis. Statutory levies of the kind mentioned above, such as EPF, ESI, contribution towards labour welfare fund etc. are required to be borne by all types of employers and not only security agencies. Such statutory levies have no direct co-relation with the services rendered to the client (inasmuch as the same arise out of employer-employee relationship) and are not specifically relatable to the services rendered to the client. As such it is clarified that no abatement in respect of the such statutory levies is admissible for the purposes of computing the service tax liability.

[KASTURI SETHI]

Advance Authorisation fee paid to DGFT is taxable under RCM. See page no.145, Vol.27 -Part 3 , Issue 15th August, 2019 of GST Law Times.