Significance of Preposition under Service Tax

Services Provided “by” and “to” the Government – Part-I


1.0 Let the reader not be under an impression that this article deals with English Grammar as a subject. This article makes an attempt to demonstrate importance of prepositions viz. “to”, “by” etc. in understanding the provisions of Service Tax (ST). It is normal human behavior to take certain things granted and jump to conclusion based on the initial perception. However, the casual approach or jumping to conclusion on the basis of first reading can be dangerous leading to substantial tax liability.Let us take the case of provision of service to the Reserve Bank of India (RBI). Ask a layman about taxability of services rendered to the RBI. In majority of the cases, the answer will be that it is exempt as RBI is considered as part of the Government of India (GoI). Therefore, there is no question of collecting ST from RBI and paying it to the GoI. However, that is not the case. So is the case even with the services provided by the GoI. It is not necessary that all the services provided by the GoI should be tax exempt. The point is that one should be extra cautious while reading statutory provisions and more particularly the ST. An attempt has been made in this analysis to show how various prepositions viz. “to”, “by” etc. plays an important role with respect to ST payable for services provided “by” and “to” the GoI.

ST Liability of the Government Department

2.0 Whether Government department is liable to pay ST? Yes. Refer to charging section i.e. Section 66B which reads as follow:

’66B. There shall be levied a tax …. provided ….. by one person to another…….

What is a “person”?

2.1 ‘Person’ has been defined in Section 65 B. It includes following entities:

  ♦  an individual

  ♦  a Hindu undivided family

  ♦  a company

  ♦  a society

  ♦  a limited liability partnership

  ♦  a firm

  ♦  an association or body of individuals, whether incorporated or not

  ♦  Government

  ♦  a local authority, or

2.2 As can be seen, the term “person” is wide and includes Government and Local Authorities.

Does it mean that the Government Department and Local Authorities will have to pay ST on services provided by it?

2.3  Yes. This has been explicitly made clear in point no. 2.4.5 of the Guidance Note. It reads as follow:

2.4.5 Are Government and local authorities also liable to pay tax?

Yes. However, most of the services provided by the Government or local authorities are in the negative list.

Which services rendered by the Government is excluded under NL?

2.4 Section 66D (a) reads as follow:

services by Government or a local authority excluding the following services to the extent they are not covered elsewhere-



2.5  This is easy to follow. But what about services provided to the GoI? Looking to the above clause, it is clear that it touches upon only one aspect viz. service provided by the GoI. However, it is silent about services provided to the GoI. It means that services provided to GoI are not covered under NL and, therefore, taxable.

2.6 Does it mean that for Service Recipient (SR) services provided by the GoI will be exempt? No. Read the provisions of Notification No. 30 relating to Reverse Charge Mechanism (RCM).

Reverse Charge Mechanism for the Services by the Government

3.0       Clause I(A)(iv)(c)  of Notification No. 30 reads as follow:

(iv) provided or agreed to be provided by,-

(C) Government or local authority by way of support services excluding,-

(1) renting of immovable property, and

(2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994

3.1 As can be seen, the SR is required to pay ST under RCM for the services received from the GoI or local authority. However, it is not that all the services are covered herein. It is restricted to “support services” (SS) only. It means that SS provided by the GoI and local authority are taxable under RCM. This also gets confirmed by point no. 4.1.6 of the guidance Note which reads as follow:

4.1.6 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, other than where such support services are by way of renting of immovable property, 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 issued under the said section as well Service Tax Rules, 1994. For services mentioned at (a) to (c) of the list (point 4.1.1 above refers) tax will be payable by the concerned department.

What are SS?

3.2 Clause 65(49) of the Finance Act defines it as follow:

(49) “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 reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis;

3.3 In view of above, all the SR availing SS from the GoI or local authority will have to pay ST under RCM. What does this item comprise of? GN explains it as follow:

4.1.7 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, and which are not substitutable in any manner by any private entity, are not support services e.g. grant of mining or licensing rights or audit of government entities established by a special law, which are required to be audited by CAG under section 18 of the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971 (such services are performed by CAG under the statue and cannot be performed by the business entity themselves and thus do not constitute support services.)

4.1.8 Will the services provided by Police or security agencies to PSUs or corporate entities or sports events held by private entities be taxable?

Yes. Services provided by government security agencies are covered by the main portion of the definition of support service as similar services can be provided by private entities. In any case it is also covered by the inclusive portion of the definition. However the tax will be actually payable on reverse charge by the recipient.

Services Provided “to” the GoI

4.0 One may be under an impression that services provided “to” the GoI may be covered under Notification No. 25 relating to Exemption of services. Yes, there are certain exemptions. But they are not applicable to all the services. There are three clauses of the said Notification which exempts following types of services:

12) Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);

(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

(f)a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;

25) Services provided to Government, a local authority or a governmental authority by way of –

(a) carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or

(b) repair or maintenance of a vessel or an aircraft;

34) Services received from a provider of service located in a non- taxable territory by –

(a) Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession;

4.1 Clause 34(a) does not directly refer to services provided to GoI. It has been drafted in a different way. It implies that the GoI will not have to pay ST under Reverse Charge Mechanism for services imported.

4.2 As can be seen from above, limited activities are covered under exemption category of services. Therefore, all the services rendered to the GoI which are not covered in the above clauses will be taxable.

4.3 The above interpretation assumes importance for the reason that at the time of providing services to the Government department, at times, an argument forwarded is that service recipient is a Government Department and, therefore, ST cannot be charged by the SP. This creates piquant situation for the Service Provider (SP) as, on the one hand, he will be required to discharge tax liability while on the other hand the same will not be paid by the respective Govt. Department.

Precautions to be taken

5.0 It should always be remembered that ST has three dimensions viz. SP, SR and nature of service. Statutory provisions with respect to services apply to either one or two or all of them. With the introduction of NL and Mega Exemption Notifications (MEN), things have become more complex. These three dimensions are required to be examined from the perspective of NL and MEN as well. Any exercise without looking into these aspects may lead to tax complications.

In the next article, we shall examine such issues arising in the cases of Reserve Bank of India, Charitable Trusts and Foreign Diplomatic Mission.

CA. Pradip R Shah,  e-mail:

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  1. G.C Patidar says:

    1. Security services 2. Hospitality Services 3. Travel services and 4 Electric repair and maintenance services provided to Govt. Institution are liable to service tax or not.

  2. Nagaraj Karthikeya says:

    Thank you very much for a very informative article. But, my doubt has not been resolved. Here Department of Posts is Service Recipient and State Police Department is Service Provider. Whether the Dept. of Posts can claim Cenvat Credit on the Service Tax payable to State Police Department.

  3. Veeravadhani Munagala says:

    I am a manpower supplier and supplies man power to government departments. In this case, who will pay the service tax to the exchequer? Government department (SR) or me (SP)?

  4. Sampath says:

    I have an travel agency and I am providing service to govt. department? should I collect service tax from the department? If so what is the rate.

    Please mail me the reply

  5. Jalandhar Gosavi says:

    Government of Maharashtra is getting land on lease from Indian railways, which is for use of constructing toilet this lease transaction is service tax applicable?

  6. Rahul Dixit says:

    i am working govt.(MOD)department, which is providing services to both (MOD and MHA) govt and non govt sectors.

    are we (a MOD department)liable to pay taxes for services rendered to other (or same) departments?

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January 2021