Dr. Sanjiv Agarwal

As we all know, Service Tax is levied when an activity is carried out by one person for another for a consideration i.e., two persons are involved – a service provider and a service receiver. The term ‘person’ is defined in clause 37 of section 65B of the Finance Act, 1994 which, inter alia includes ‘government’.

Clause 37 provides an inclusive definition of person which includes individuals, and certain specified types of entities/bodies etc. including government. The above list covers almost all types of entities and organizations as the residual entry covers the persons not covered in earlier specified types.

The statutory provision of Service Tax law define a ‘local authority’ under section 65B (31) of the Act and a ‘governmental authority’ under Notification No. 25/2012-ST dated 20.06.2012. The term ‘government’ was never defined in Service Tax provisions prior to Finance Bill, 2015.

Since ‘Government’ had 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 Clause Act 1897, State includes Union Territory.

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.

Meaning of ‘Government’

“Government” has now been defined by clause 26A in section 65B being inserted by the Finance Bill, 2015.

The proposed new definition reads as under –

“Government means the Departments of the Central Government, a State Government and its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made thereunder”.

Accordingly, the definition of ‘government’ is both, an inclusive and an exclusive definition. The expression, ‘government’ means and includes the following –

  • Departments of Central Government,
  • State Government and its departments, and
  • A Union Territory and its departments

It implies that nothing except the aforementioned three classes of governments / departments shall constitute the ‘government’. Again, what is ‘department’ is not defined but any department or part of government will be considered as integral part of government. It would obviously include ministries and various departments comprised therein. For example, Ministry of Finance of a government may have revenue department, expenditure department, planning / budgeting department, department of banking, economic affairs department and so on.

According to the definition, ‘government’ shall not include entity or enterprise which has been created under a statute or otherwise, the accounts of which are not required to be kept as per article 150 of the constitution or any rules framed under article 150.

This exclusion category would include entities and body corporate such as –

  • Banks / financial constitutions
  • Housing Boards
  • Central or State Public Sector Undertakings (PSUs)
  • Autonomous bodies
  • State Financial Corporations
  • Development authorities
  • Institutes such as ICAI, ICSI, ICWAI etc.

An agency or entity getting grants or subsidy from government does not become a government. Further, there is a difference between government, governmental authority, local authority and government PSU. Only the ‘government’ as explained above shall be considered as government and entitled to benefits and privileges of negative list and exemptions available to government.

According to article 150 of the constitution of India, the accounts of the union and of the states shall be kept in such form as the president of India may, on the advise of Comptroller and Auditor – General of India (CAG), prescribe.

Usually such accounts are also subject to audit by office of CAG of India whose report is submitted to the President who then cause them to be laid before both the houses of the Parliament. In case of Sates, report is submitted to the Governor of the State, who shall cause them to be laid before the state legislature. Thus only those departments whose accounts are so prescribed and maintained will be covered under the scope of government.

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  1. sanjay singal says:

    Dear Sir

    Is “Indian railway” comes under the category of Government. If yes, then if any services which an company getting from Indian Railway covers under Reverse charge.

    Sanjay Singal

  2. A. Ranganathan says:

    Service involves two persons-the provider and the receiver, as per your definition.

    Where does the Government come in, in this? What is the SERVICE they provide to to impose a tax?

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September 2021