CA Abhishek Chopra
Contracts in the business of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of construction with Government, a local authority or a governmental authority have been at mercy hands for quite some time, due to the change in law since 2012. Such infrastructure contracts which usually are long term contracts spread over years and due to government or semi-government involved contracts are usually pursuant to tender where margin plays a vital role. Being a prudent business owner the contractor quotes according to the law prevailing and market forces where there are meager margins due to lowest bid concept. This uncertainty gave rise to protracted litigation and financial instability to the contractor.
The service tax shifted from positive regime to negative regime w.e.f. 01- 07-2012. The government has inserted MEGA EXEMPTION Notification No. 25/2012-ST dated 20-06-2012 effective from 01-07-2012.Under this notification entry no. 12 deals with exemption from payment of service tax for service provided to government.
The government issued Notification No. 06/2015-ST dated 01-03-2015 effective from 01-04-2015 vide which they had withdrawn the exemption covered under clause (a), (b), (c ) and (f) of Notification No.25-2012-ST dated 20-June-2012 and vide Notification 09/2016-ST-dated 01-March 2016 the government has restored the exemption retrospectively which was withdrawn by introducing Notification 06/2015-ST dated 01-March 2015. The changes in exemption available to Contractor covered under entry No. 12 of Notification No. 25-2012-ST from the date of introduction till Finance Bill, 2016 can be understand with the help of below table:
|MEGA EXEMPTION Notification No. 25/2012-ST dated 20-06-2012||Notification No. 06/2015-ST dated 01-03-2015||Notification No. 09-2016-ST dated 01-03-2016|
“12. Services provided to the Government, a local authority or a governmental authority by way of construction,erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –
(a) a civil structure or any other original works meant predominantly or use other than for commerce, industry, or any other business or profession;
(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for
(i) water supply
(ii) water treatment, or
(iii) sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;
|Sub clause (ii) of para 1 of said Notification says “in entry 12, items (a), (c) and (f) shall be omitted;||Restored till 31.03.2020 for contracts entered prior to 31.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to such|
Hence, all the Assessee/Contractor/Service Provider(“Contractor”) who entered into contract for construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of construction with Government, a local authority or a governmental authority (“Contractee”)prior to the issue of this notification are covered by this levy. The Contractee is either not paying service tax or has paid service tax to contractor with delay. As a result of which the Contractor has to pay for such additional levy either out of his pocket and even if after litigation/dispute with contractee they receive the amount of service tax from contractee they had to bear the brunt of interest.
Further, there are many assessee who has neither received service tax nor paid any service tax to service tax department and are facing litigation before various Authorities. This withdrawal of exemption created major financial crisis to the assessee due to huge amount involved. To address the additional levy contractor resorted to:
1. Arbitration: Where Contractee denied payment and only procedure was to refer to Arbitration, if contained in the contract [Arbitration Act, 1991 .
2. Courts: For legitimate dues recovery, where contract was silent on additional levy.
3. Paid the Service tax to department: where the contract specifically provided for additional levy to be borne by the Contractor.
Taking note of this crises the government in Union Budget 2016-17 has restored the above exemption vide Notification No. 09-2016-ST dated 01-03-2016 for services provided under a contract which had been entered into prior to 01-03-2015 and on which appropriate stamp duty, where applicable, has been paid prior to the date. The exemption is being restored till 31-03-2020. With this restoration issues have been put to rest.
These circumstances give rise to careful deciphering of laws applicable in these intricate situations where Contract attains prime importance and has to be analyzed in light of Indian Contract Act,1872 vis-à-vis Stamp Act of the relevant state. Stamp duty being state subject has been point of litigation and mentioning appropriate stamp duty gives a twist to twist!
However, the assessee has below mentioned option based on his situation provided the condition mentioned under Notification 09-2016-ST dated 01- 03-2016 is satisfied:
1. If service provider has collected and paid service tax along with applicable Interest.
Way forward: In this case Service recipient has to file the refund claim for service tax and service provider need to file refund claim of interest paid on delayed payment.
2. If service provider has not collected service tax but paid service tax along with applicable interest.
Way forward: In this case Service provider has to file the refund claim for service tax and interest paid on delayed payment.
3. If service provider has not collected and not paid service tax.
Way forward: Need not do anything. Enjoy!
(Author is a Practicing Chartered Accountant in Service tax from Ahmedabad and can be reached at firstname.lastname@example.org)