Ready Reckoner on GST w.r.t. Government Services

CA. Vineet Rathi

There are various services which are being provided by the government or services provided to the government. An ordinary person understands that services by/to government are exempted. But it is not true. Generally all the services by/to government are taxable until and unless exempted by the government. Further the tax is generally paid on Reverse Charge Mechanism. I have tried to compile the list of services which are exempted when the same are provided by/to the government. I hope that it will work as ready reckoner to identify the same.

SUPPLY BY GOVT. TAXABLE?

Section 7(2) of the CGST Act states that the activities or transactions undertaken by the Central Government or State Government or local authority in  which they are engaged as public authorities as may be notified by the Government on the recommendations of the Council will neither be treated as supply of goods nor supply of services.

The Central Government has notified only one kind of activity, i.e., services by way of any activity in relation to a function entrusted to a Panchayat under Article 243G of the Constitution of India.

Therefore, all other services provided by the government are taxable.

DEFINITION OF GOVERNMENT

Government as defined in CGST Act and respective SGST Acts means Central Government and respective State governments.

“Central Government” means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President. (Article 53 & 77 of the constitution).

“State Government” means the Governor or the officers subordinate to him who exercise the executive power of the State vested in the Governor and in the name of the Governor. (Article 154 & 166 of the constitution).

DEFINITION OF LOCAL AUTHORITY – SECTION 2(69) OF CGST ACT

(a) a “Panchayat” as defined in clause (d) of article 243 of the Constitution;

(b) a “Municipality” as defined in clause (e) of article 243P of the Constitution;

(c) a Municipal Committee, a Zilla Parishad, 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 Cantonments 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;

DEFINITION OF GOVERNMENTAL AUTHORITY –  PARA 2(ZF) OF NOTIFICATION NO. 12/2017-CT(RATE)

An authority or a board or any other body, which is either set up by an Act of Parliament or a State Legislature or established by any Government, with 90 per cent or more participation 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.

DEFINITION OF GOVERNMENTAL ENTITY –  PARA 2(ZFA) OF NOTIFICATION NO. 12/2017-CT(RATE)

An authority or a board or any other body including a society, trust, corporation which is set up by an Act of Parliament or State Legislature or is established by any Government, with 90 per cent or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.

EXEMPTION ON SERVICES SUPPLIED TO THE GOVERNMENT: Following services when provided by any person to the Government are exempted –

Entry No. 3 : Pure services (excluding works contract service or other composite supplies involving supply of any goods) provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution.

Entry No. 3A : Composite supply of goods and services in which the value of supply of goods constitutes not more than 25 per cent of the value of the said composite supply provided to the Central Government, State Government or Union territory or local authority or a Governmental authority or a Government Entity by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution or in relation to any function entrusted to a Municipality under Article 243W of the Constitution.

Entry No. 11A : Service provided by Fair Price Shops to Central Government, State Government or Union territory by way of sale of food grains, kerosene, sugar, edible oil, etc. under Public Distribution System against consideration in the form of commission or margin.

Entry No. 16 : Service provided to the Central Government, by way of transport of passengers with or without accompanied belongings, by air, embarking from or terminating at a regional connectivity scheme airport, against consideration in the form of viability gap funding.

Provided that nothing contained in this Entry shall apply on or after the expiry of a period of three years from the date of commencement of operations of the regional connectivity scheme airport as notified by the Ministry of Civil Aviation.

Entry No. 22 : Supply of a motor vehicle meant to carry more than twelve passengers by way of giving on hire to a state transport undertaking is exempted from tax.

The exemption is applicable to services provided to state transport undertaking and not to other departments of Government or local authority.

Entry No. 40 : Service provided to the Central Government, State Government, Union territory under any insurance scheme for which total premium is paid by the Central Government, State Government, Union territory.

Entry No. 43 : Service of leasing of assets (rolling stock assets including wagons, coaches, locos) by the Indian Railways Finance Corporation to Indian Railways.

Entry No. 45 : Services Provided by :

(a) an arbitral tribunal to –

(iii) the Central Government, State Government, Union territory, local authority, Governmental Authority or Government Entity;

(b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to-

(iv) the Central Government, State Government, Union territory, local authority, Governmental Authority or Government Entity;

(c) a senior advocate by way of legal services to-

(iii) the Central Government, State Government, Union territory, local authority, Governmental Authority or Government entity

Entry No. 51 : Services provided by the Goods and Services Tax Network to the Central Government or State Governments or Union territories for implementation of Goods and Services Tax.

Entry No. 72 : Services provided to the Central Government, State Government, Union territory administration under any training programme for which total expenditure is borne by the Central Government, State Government, Union territory administration.

 EXEMPTION ON SERVICES PROVIDED BY THE GOVERNMENT: Following services provided by the Government are exempted –

Entry No. 4 : Services by governmental authority by way of any activity in relation to any function entrusted to a municipality under Article 243W of the Constitution.

Entry No. 5 : Services by governmental authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution.

FUNCTION ENTRUSTED TO A PANCHAYAT UNDER ARTICLE 243G OF THE CONSTITUTION:

• The preparation of plans for economic development and social justice.
• The implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to the matters listed in the Eleventh Schedule.

o Agriculture, including agricultural extension.

o Land improvement, implementation of land reforms, land consolidation and soil conservation.

o Minor irrigation, water management and watershed development.

o Animal husbandry, dairying and poultry.

o Fisheries.

o Social forestry and farm forestry.

o Minor forest produce.

o Small scale industries, including food processing industries.

o Khadi, village and cottage industries.

o Rural housing.

o Drinking water.

o Fuel and fodder.

o Roads, culverts, bridges, ferries, waterways and other means of communication.

o Rural electrification, including distribution of electricity.

o Non-conventional energy sources.

o Poverty alleviation programme.

o Education, including primary and secondary schools.

o Technical training and vocational education.

o Adult and non-formal education.

o Libraries.

o Cultural activities

o Markets and fairs.

o Health and sanitation, including hospitals, primary health centres and dispensaries.

o Family welfare.

o Women and child development.

o Social welfare, including welfare of the handicapped and mentally retarded.

o Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes.

o Public distribution system.

o Maintenance of community assets

FUNCTION ENTRUSTED TO A MUNICIPALITY UNDER ARTICLE 243W OF THE CONSTITUTION:

• The preparation of plans for economic development and social justice.
• The implementation of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule

o Urban planning including town planning.

o Regulation of land-use and construction of buildings.

o Planning for economic and social development.

o Roads and bridges.

o Water supply for domestic, industrial and commercial purposes.

o Public health, sanitation conservancy and solid waste management.

o Fire services.

o Urban forestry, protection of the environment and promotion of ecological aspects.

o Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.

o Slum improvement and up-gradation.

o Urban poverty alleviation.

o Provision of urban amenities and facilities such as parks, gardens, playgrounds.

o Promotion of cultural, educational and aesthetic aspects.

o Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.

o Cattle pounds; prevention of cruelty to animals.

o Vital statistics including registration of births and deaths.

o Public amenities including street lighting, parking lots, bus stops and public conveniences.

o Regulation of slaughter houses and tanneries.

Entry No. 6 : Services by the Central Government, State Government, Union territory or local authority excluding the following services—

(a) 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 the Central Government, State Government, Union territory;

(b) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

(c) transport of goods or passengers; or

(d) any service, other than services covered under entries (a) to (c) above, provided to business entities.

It is to be noted that transport of passengers by Indian Railways in a class other than first class or air conditioned coach are exempted from GST vide entry no. 17.

Entry No. 7 : Services provided by the Central Government, State Government, Union territory or local authority to a business entity with an aggregate turnover of up to twenty lakh rupees (ten lakh rupees in case of a special category State) in the preceding financial year.

Explanation: For the purposes of this entry, it is hereby clarified that the provisions of this entry shall not be applicable to:

(a) services (i) by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than the Central Government, State Government, Union territory; (ii) in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) of transport of goods or passengers; and

(b)    services by way of renting of immovable property.

Entry No. 8 : Services provided by the Central Government, State Government, Union territory or local authority to another Central Government, State Government, Union territory or local authority:

Provided that nothing contained in this entry shall apply to services— (i) by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than the Central Government, State Government, Union territory; (ii) in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) of transport of goods or passengers.

Entry No. 9 : Services provided by Central Government, State Government, Union territory or a local authority where the consideration for such services does not exceed five thousand rupees:

Provided that nothing contained in this entry shall apply to— (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 the Central Government, State Government, Union territory; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers.

Provided further that in case where continuous supply of service, as defined in sub-section (33) of section 2 of the Central Goods and Services Tax Act, 2017, is provided by the Central Government, State Government, Union territory or a local authority, the exemption shall apply only where the consideration charged for such service does not exceed five thousand rupees in a financial year.

Entry No. 9C : Supply of service by a Government entity to Central Government, State Government, Union territory, local authority or any person specified by Central Government, State Government, Union territory or local authority against consideration received from Central Government, State Government, Union territory or local authority, in the form of grants.

Entry No. 9D : Services by an old age home run by Central Government, State Government or by an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) to its residents (aged 60 years or more) against consideration upto twenty-five thousand rupees per month per member, provided that the consideration charged is inclusive of charges for boarding, lodging and maintenance.

Entry No. 34A : Services supplied by Central Government, State Government, Union territory to their undertakings or Public Sector Undertakings (PSUs) by way of guaranteeing the loans taken by such undertakings or PSUs from the financial institutions.

Entry No. 42 : Services provided by the Central Government, State Government, Union territory or local authority by way of allowing a business entity to operate as a telecom service provider or use radio frequency spectrum during the period prior to the 1st April, 2016, on payment of license fee or spectrum user charges, as the case may be.

Entry No. 47 : Services provided by the Central Government, State Government, Union territory or local authority by way of –

(a) registration required under any law for the time being in force;

(b) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, including fire license, required under any law for the time being in force.

Entry No. 61 : Services provided by the Central Government, State Government, Union territory or local authority by way of issuance of passport, visa, driving licence, birth certificate or death certificate.

Entry No. 62 : Services provided by the Central Government, State Government, Union territory or local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Central Government, State Government, Union territory or local authority under such contract.

Entry No. 63 : Services provided by the Central Government, State Government, Union territory or local authority by way of assignment of right to use natural resources to an individual farmer for cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products.

Entry No. 64 : Services provided by the Central Government, State Government, Union territory or local authority by way of assignment of right to use any natural resource where such right to use was assigned by the Central Government, State Government, Union territory or local authority before the 1st April, 2016.

Provided that the exemption shall apply only to tax payable on one time charge payable, in full upfront or in installments, for assignment of right to use such natural resource.

Entry No. 65 : Services provided by the Central Government, State Government, Union territory by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of merchant overtime charges.

Entry No. 65B : Services supplied by a State Government to Excess Royalty Collection Contractor (ERCC) by way of assigning the right to collect royalty on behalf of the State Government on the mineral dispatched by the mining lease holders.

Explanation: “Mining lease holder” means a person who has been granted mining lease, quarry lease or license or other mineral concession under the Mines and Minerals (Development and Regulation) Act, 1957 (67 of 1957), the rules made thereunder or the rules made by a State Government under sub-section (1) of section 15 of the Mines and Minerals (Development and Regulation) Act, 1957.

REVERSE CHARGE MECHANISM ON SERVICE PROVIDED BY GOVERNMENT:

Section 9(3) of CGST Act read with Notification no. 13/2017-Central Tax (rate) dated 28/06/2017 and Notification no. 3/2018-Central Tax (rate) dated 25/01/2018 : Tax on services provided by the government is generally payable by the service recipient, i.e., business entity on the services provided by the Central Government, State Government, Union territory or local authority to the business entity located in the taxable territory:

If services supplied by the Central Government, State Government, Union Territory or local authority by way of renting of immovable property to a person registered under the CGST Act 2017 , then GST is payable by the service recipient.

However, on following services govt. will continue to pay the taxes as service provider:

(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 Central Government, State Government or Union territory or local authority;

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

(iii) transport of goods or passengers.

FAQs

Question : Would services received by Government, a local authority, a governmental authority from a provider of service located outside India be taxable?

Answer : No tax is payable on the services received by the Government / local authority/ governmental authority from a provider of service located outside India. However, the exemption is applicable to only those services which are received for the purpose other than commerce, industry or any other business or profession.

In other words, if the Government receives such services for the purpose of business or commerce, then tax would apply on the same.

Question : Whether the exemption is applicable to online information and database access or retrieval services received by Government or local authorities from provider of service located in non taxable territory?

Answer : No. Online information and database access or retrieval services received by Government or local authorities from non taxable territory for any purpose including furtherance of business or commerce are liable to tax.

About the author:

CA. Vineet Rathi is qualified CA of May 2011 batch. He is Fellow Member of ICAI. He is practicing as Chartered Accountant and is Senior Partner of M/s Vineet Rathi & Associates. He is commerce post graduate and Law graduate as well. He has qualified DISA, certified course on concurrent audit of banks, certified course on forensic audit and fraud detection by ICAI. He is providing various services to many entities including individuals, partnership firm, companies, banks, NRIs in the area of GST, income tax, service tax, accountancy, registrar of companies, bank audits, internal audit, statutory audit etc. including registration and various compliances including filing of return. He has specialization in handling indirect appeals upto Tribunal level.

He was Member of Managing Committee of ICAI Ghaziabad Branch for the period 2016-2019. He was being appointed as Secretary, CICASA Chairman of ICAI and Treasurer of ICAI- Ghaziabad Branch for the term 2018-19, 2017-18 and 2016-17 respectively. He has been re-elected as Member of Managing Committee of ICAI Ghaziabad Branch for the period 2019-2022.