Dr. Sanjiv Agarwal, FCA, FCS

Sanjiv Agarwal PhotoAssignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof [section 66E(j)]

Finance Bill, 2016 has introduced clause (j) as one of the declared services. Accordingly ‘assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof’ has been declared as a service w.e.f. enactment of Finance Act, 2016.  The Act declares assignment by the Government of the right to use the radio-frequency spectrum and its subsequent transfers a service, to make it clear that assignment of right to use the spectrum is a service leviable to service tax and not sale of intangible goods under article 366 (29A) of the Constitution of India.

Service Tax shall therefore be levied on spectrum auction carried out by any person including the Government.

This entry declares the assignment by the Government of the right to use radio-frequency spectrum and its subsequent transfers as a service and not a sale of intangible goods, on which Service Tax can be levied.  In case of services provided by the Government, Service Tax shall have to be paid by telecom companies under reverse charge basis.

Unlike normal cenvat credit, in case of spectrum sales, cenvat credit of such tax liability will be deferred over the duration of the license period. In terms of Rule 4(7) of Cenvat Credit Rules, 2004, Service Tax paid by such receiver of service of spectrum, mines, etc., cannot be taken in the year of payment like other input services but only be available on pro-rata basis for the period it is spread over. Thus, even when the whole amount is collected, there is restriction on taking Cenvat credit at the same time. However, if such rights are resold / assigned, balance credit can be availed subject to a maximum of service tax payable.

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