CA Dipesh Parasrampuria
Any service provided by the Government is not taxable since it is covered under the Negative List. However certain services (specified in section 66D (a)(i) to (iv) of the Finance Act, 1994) provided by government are taxable as they are covered under exceptions to the negative list.
For example, Support Services provided to any business entity by the Government or Local authority will be taxable as it is covered under the exception of the Negative list. In such cases, Service receiver has to pay the Service Tax as per the Reverse Charge mechanism (Notification No. 30/2012-ST dated 20.06.2012). However services provided by government in terms of their sovereign rights to business entities, and which are not substitutable in any manner by any private entity , are not Support Services and hence not taxable.
Service Tax on the Support Services provided by GoI :
Service Tax is not applicable on the services provided by the Government subject to certain exceptions as mentioned in clause (a) of section 66D of the Finance Act, 1994.
As per Section 66D of Finance Act, 1994 , Negative list includes :
a) Services by Government or a local authority EXCLUDING
i. Services by the department of Post 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 a port or airport ;
iii. Transport of goods or passengers ; or
iv. Support services , other than covered under clauses i to iii above, provided to business entities ;
Hence Support Services provided to a business entity by the Government or a local authority will be taxable as it is specifically excluded from the Negative list. Further, under the Reverse Charge mechanism as per the Notification No. 30/2012-ST dated 20.06.2012, Service Receiver will be liable to pay Service Tax for the Services provided or to be provided by “Government or local authority by way of support services excluding, –
1. Renting of immovable property, and
2. Services specified in sub-clauses (i) to (iii) of clause (a) of Section 66D , to any business entity located in the taxable territory”
As per clause 49 of Section 65B of Finance Act, 1994 , Support Services means “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 other reason whatsoever and shall include advertisement and Promotion, Construction or Works contract, renting of Immovable property, Security, Testing and analysis.”
Service Tax applicability is based on the fact of each case. Any service provided by GoI, other than those specified in section 66D (a) (i) to (iii) above, will be taxable if it satisfies the following conditions
i. It is in the nature of Support Service and can also be provided by any other entity
ii. It is provided to a business entity
For example, Service Tax is applicable on the Security Service provided by Government in case of PSUs as it can also be obtained from any other security agencies. However audit of government entities conducted by CAG under section 18 of the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971 cannot be performed by the business entity themselves and thus do not constitute support services.
(Author : Dipesh Parasrampuria, ACA can be reached at firstname.lastname@example.org)