1 Services provided by Government or local authority
1.1 Are all services provided by Government or local authority covered in the negative list?
No. Most services provided by the Central or State Government or local authorities are in the negative list except the following:
(a) services provided by the Department of Posts by way of speed post, express parcel post, life insurance and agency services carried out on payment of commission on non-government business;
(b) services in relation to a vessel or an aircraft inside or outside the precincts of a port or an airport;
(c) transport of goods and/or passengers;
(d) support services, other than those covered by clauses (a) to (c) above, to business entities.
1.2 Would the taxable services provided by the Government be charged to tax if they are otherwise exempt or specified elsewhere in the negative list?
No. If the services provided by the government or local authorities that have been excluded from the negative list entry are otherwise specified in the negative list then such services would also not be taxable.
1.3 ‘Government’ has not been defined in the Act. What is the meaning of Government?
Since ‘Government’ has not been defined in the Act, the definition of ‘Government’ as contained in the General Clauses Act, 1897 would be applicable as per which ‘Government’ includes both State Government and Central Government. Further as per the General Clauses Act, 1897, State includes Union Territory.
1.4 Are various corporations formed under Central Acts or State Acts or various government companies registered under the Companies Act, 1956 or autonomous institutions set up by a special Acts covered under the definition of ‘Government’?
No. In terms of the definition of ‘Government’ as contained in the General Clause Act, 1857 and as per the settled position of law such corporations or authorities or companies are not included in the definition of ‘Government’. Services provided by such entities would, therefore, not be entitled to the negative list entry relating to the ‘Government’. It would also not include regulatory bodies.
1.5 What entities are then covered under ‘Government’?
‘Government’ would include various departments and offices of the Central or State Government or the U.T. Administrations which carry out their functions in the name and by order of the President of India or the Governor of a State.
1.6 Would a department of the Government need to get itself registered for each of the services listed in answer to Q. No.4.1.1 above?
For the support services provided by the Government to business entities government departments will not have to get registered because service tax will be payable on such services by the service receiver i.e. the business entities receiving the service under reverse charge mechanism in terms of the provisions of section 68 of the Act and the notification proposed to be issued under the said section. For services mentioned at (a) to (c) of the list (point 4.1.1 above refers) tax will be payable by the concerned department.
1.7 What is the meaning of “support services” which appears to be a phrase of wide ambit?
Support services have been defined in section 65B of the Act as ‘infrastructural, operational, administrative, logistic marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of movable or immovable property, security, testing and analysis’. Thus services which are provided by government in terms of their sovereign right to business entities are not support services e.g. grant of mining or licensing rights.
1.8 What is the meaning of local authority?
Local authority is defined in section 65B and means the following:-
♦ A Panchayat as referred to in clause (d) of article 243 of the Constitution
♦ A Municipality as referred to in clause (e) of article 243P of the Constitution
♦ A Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund
♦ A Cantonment Board as defined in section 3 of the Cantonments Act, 2006
♦ A regional council or a district council constituted under the Sixth Schedule to the Constitution
♦ A development board constituted under article 371 of the Constitution, or
♦ A regional council constituted under article 371A of the Constitution.
Rationale behind taxing certain activities of the Government or local authorities
Only those activities of Government or local authorities are taxed where they compete with private entities. The rationale is as follows-
♦ to provide a level playing field to private entities in these areas as exemption to Government in such activities would lead to competitive inequities; and
♦ to avoid break in Cenvat chain as the support services provided by Government are normally in the nature of intermediary services.