GST on services provided by Government, Local Authorities etc.

I have preparing an article on Treatment of services provided to Government, Local Authorities etc. under GST Scenario. Even after 4 years completed, we have some doubts on if a person or organization provided services to Government or Local Authorities GST is applicable or not. If applicable on what services are liable to pay GST or If exemption is available on what services are exempted from GST. So, I am trying to clarify  that in this article to all of you at my best of knowledge.

Here we came to know about some of the terminology mentioned in the GST Act. They are :-

1. What is the meaning of “Government”?

As per Section 2(53) of the CGST Act, 2017, Government means the “ Central Government”  or State Government, or Lt. Governor in the case of Union Territory with legislature.

2. What is the meaning of” Local Authority”?

As per Section 2(69) of the CGST Act, 2017, Local Authority means:

(a). A “Panchayat as defined in Article 243(d) of the Constitution,

(b). A” Municipality” as defined in Article 243P(e) of the Constitution,

(c ). A “Municipal Committee”, a “ZillaParishad , a “District Board”, and any other authority legally entitled to, or entrusted by the Central Government or any State Government with the control  or management of a municipal or Local fund,

(d). A Cantonment Board as defined in Section 3 of the Cantonment Act, 2006,

(e ). A Regional Council or a District council constituted under the Sixth Schedule to the  Constitution.

(f). A Development Board constituted under Article 371 of the Constitution, or

(g). A Regional Council constituted under Article 371A of the Constitution.

3. What is the meaning of “State”?

As per Section 2(103) of the CGST Act, 2017 “State” includes a Union Territory with Legislature.

4. What is the meaning of “Union Territory”?

As per Section 2(114) of the CGST Act, 2017, “ Union Territory” means the territory  of

(a). The Andaman and Nicobar Islands,

(b). Lakshadweep,

(c). Dadra and Diu,

(d). Chandigarh, and

(e). Other territory.

5. What is the meaning of “Government Authority” ?

As per Para2(zf) of the Notification No. 12/2017-CT(Rate), dated. 28.06.2017, “Government Authority “means an authority or a board or any other body ,-

(i). Set up by an Act of Parliament or  a State Legislature, or

(ii). Established by any Government,

With 90% or more participants by way of equity or control, to carry out any function entrusted to a Municipality under Article 243W of the Constitution or to a Panchayat under Article 243G of the Constitution.

6. What is the meaning of “Government Entity” ?

As per Para2(zfa) of the Notification NO. 12/2017-CT(Rate), dated. 28.06.2017, “Government Entity  “ means an authority or a board or any other body including a society ,-

(i).Set up by an Act of Parliament or  a State Legislature, or

(ii). Established by any Government,

With 90% or more participants by way of equity or control, to carry out any function entrusted by the Central Government, State Government, Union Territory or a Local Authority.

7. What are the functions entrusted as per Article 243W of the Constitution to Municipalities?

The functions entrusted to a municipality under the Twelfth Schedule to Article 243W of the Constitution and exempted from GST as per S.L.No.4 of the Notification  are as under:-

(i) Urban planning including town planning,

(ii) Regulation lf land-use and construction of buildings,

(iii) Planning for economic and social development,

(iv) Roads and bridges,

(v) Water supply for domestic, industrial ad commercial purpose,

(vi) Public health, sanitation conservancy and solid waste management,

(vii) Fire Services,

(viii) Urban forestry, protection of the environment and promotion of ecological aspects,

(ix) Safeguarding the interests of weaker section of society, including the handicapped and mentally retarded,

(x) Slum improvement and u gradation.

(xi) Urban poverty alleviation,

(xii) Provision of urban amenities and facilities such as parks, gardens, playgrounds,

(xiii) Promotion of cultural , educational and aesthetic aspects,

(xiv) Burias and burial grounds, cremations, cremation grounds and electronic crematoriums,

(xv) Cattle pounds, prevention of cruelty to animals,

(xvi) Vital statistics including registration of births and deaths,

(xvii) Public amenities including street lighting, parking lots, bus stops and public conveniences,

(xviii) Regulation of slaughter houses and tanneries.

Thus, services by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement, up-gradation, etc., will be exempt from GST. But the exemption would not be extendable to other services such as consultancy, designing etc., not directly with these specified services.

8. What are the functions entrusted to Punchayat under Article 243G of the Constitution?

The functions entrusted to Punchayat under the Twelfth Schedule XI to Article 243W of the Constitution and exempted from GST as per S.L.No.4 of the Notification  are as under:-

(i) Agricultural, including agricultural extension.

(ii) Land development , implementation of and reforms, land consolidation and soil conservation,

(iii) Minor irrigation, water management and water development,

(iv) Animal husbandry, dairying and poultry,

(v) Fisheries,

(vi) Social forestry and farm forestry,

(vii) Minor forest produce,

(viii) Small scal industries, including food processing industries,

(ix) Khadi, village and cottage industries,

(x) Rural housing.

(xi) Drinking water,

(xii) Furl and Fodder,

(xiii) Roads, culverts, bridges, ferries, waterways and other means of communication,

(xiv) Rural electrification, including distribution of electricity,

(xv) Non-conventional energy sources,

(xvi) Poverty alleviation Programme,

(xvii) Education, including primary and secondary schools,

(xviii) Technical training and vocational education,

(xix) Adult and non-formal education,

(xx) Libraries,

(xxi) Cultural activities,

(xxii) Market and fairs,

(xxiii) Health and sanitation, including hospitals, primary health centres and dispensaries,

(xxiv) Family welfare,

(xxv) Women and child development,

(xxvi) Social welfare including welfare of the handicapped and mentally retarded,

(xxvii) Welfare of the weaker sections and in particular of the Scheduled Castes ad the Scheduled Tribes,

(xxviii) Public Distribution System,

(xxix) Maintenance of community assets.

9. Are all services provided by the Government or Local Authority exempted from payment of GST Tax?

No, All services provide by the Government or local authority are not exempted from GST Tax. These following services are liable to GST Tax:-

(i) Services by the department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government

(ii) Services in relation to an aircraft or a vessel, inside or outside the precincts of an airport or a port,

(iii) Transport of goods or passengers, or

(iv) Any service, other than services covered under (i) to (iii) above, provided to business entities.

Consequently, most of the services provided by the Central Government, State Government, Union Government, Or local authority are exempt from GST Tax. Further , services provided by governmental authority by way any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution and services by a governmental authority by way of any activity in relation to any function entrusted to a Punchayat under Article 243G of the Constitution are also exempt.

10. What are the transport services provided by the Government or Local Authority exempt from GST Tax?

These following transport services provided by the Government to passengers are exempt from GST Tax:-

(a) Railways in a class other than:-

(i). First Class, or

(ii). An air-conditioned coach.

(b) Metro, monorail or tramway,

(c) Inland waterways,

(d) Public transport other than predominantly for tourism purpose , in a vessel between places located in India,

(e) Stage carriage ( Other than air-conditioned),

(f) Metered cabs or auto rickshaws (including E-Rickshaws).

11. Whether the guarantee provided by State Government to state owned companies against guarantee commission, is taxable or exempted under GST Law?

The services provided by Central /State Government to any business entity including PSUs by way of guaranteeing the loans taken by them from financial institutions against consideration in any form including Guarantee Commission is taxable.

12. Assignment of right to use any natural resource is taxable or exempted under GST?

The Government provides licenses to various companies including Public Sector Undertakings for exploration of natural resources like oil, hydrocarbons, iron ore, Manganese etc,. For having assigned the rights to use the natural resources, the licensee companies are required to pay consideration in the form of annual license fee, lease charges, royalty etc,. to the Government.

The activity of assignment of rights to use natural resources it treated as supply of services and the licensee is required to pay tax on the amount of consideration paid in the form of royalty or any other form under reverse charge mechanism (RCM).

13. If a person or organization paid fee at the time of submit of E-Tender is it taxable and what is the rate of GST under GST Law?

It is a service provided by the department and the rate is @18%. But the department need not collect the tax. It will be paid by the contractor on reverse charge mechanism (RCM) while filing his returns.

14. If the Central Government, State Government , Union Territory or Local Authority providing services by way of renting of immovable property , it taxable as forwarded charges or Reverse Charges under GST Law?

As per amendment has been made  with effect from 25.01.2018 in respect of renting of immovable property services provided by the Central Government, State Government , Union Territory or Local Authority , and the effects are as under:-

(i) Renting service is provided to any person registered under the GST Act subject to reverse charge and GST shall be paid by the registered person,

(ii) Renting service is provided to any person not registered under GST Act, subject to forward charge and GST shall be paid by the Governments, etc.,

As per entry no.5 and entry no.5A of RCM Notification, any business entity located in the taxable territory is liable to pay GST on RCM basis, whereas entry no.5A makes liable to the person registered under the GST Act to pay GST on RCM basis. Hence, for the purposes of entry no. 5, business entity, even if unregistered, is liable to get registration, if it is receiving specified service from Government, unless the given service is exempt. It is important to recall that there is no threshold limit for registration for discharge of the GST Liability on reverse charge basis (RCM).

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