Santosh Kumar (Advocate)
Position between 1June, 2012 to 31st March, 2015
As you are very much aware that Service Tax Administration interred into Negative list Era with effect from 1st June, 2012.
In this concept of service tax administration, all services became taxable except those numbered in the Negative list of Section 66D of the Finance Act, 1994.
Negative list of Section 66D also deals with the Services Provided by Government or a local authority in the following manner:-
“Section 66D. Negative list of services: – The negative list shall comprise of the following services, namely:––
(a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere—
(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 Government;
(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; or
(iv) support services, other than services covered under clauses (i) to (iii) above, provided to business entities;
In another words, under the protection of Section 66D all services provided by Government or a local authority were non-taxable services, excluding following specified services:-
(i) services provided by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government. In this circumstances,.
(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;
(iv) support services, other than services covered under clauses (i) to (iii) above, provided to business entities
In the above three mentioned services, the providers of services have been made liable to collect service tax and deposit to Central Government Account under Forward charge mechanism.
And for Fourth Service i. e. Support Services, the Recipients of services have been made liable to collect service tax and deposit to Central Government Account under reverse charge mechanism.Service Tax is Payable under RCM as per SL. No. 6 of Notification No. 30/2012-ST on 100% value.
On and After 1st April, 2015
In order to increase the revenue collection under the Service Tax regime, a change was made in the Negative List of Section 66D by amendment vide Section 109(1) of the Finance Act, 2015.
To give effect to the Section 109(1) of the Finance Act, 2015, Notification no. 6/2016-ST dated 18.2.2016, has been issued by the Central Government appoints 1.4.2016 as the date from which the provisions of Section 109(1) of Finance Act, 2015 shall come into effect.
After the amendment the Section 66D reads as follow:-
“66D. Negative list of services: – The negative list shall comprise of the following services, namely:––
(a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere—
(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 Government;
(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; or
(iv) any service [before amendment support services], other than services covered under clauses (i) to (iii) above, provided to business entities;
In another words, wef 1st April 2016 any services, other than services covered under clauses (i) to (iii) of Section 66D provided by Government or local authority to business entities will be taxable and Service Receiver (Business Entities) are liable to pay service tax under reverse charge mechanism,except the services that are specifically exempted.
Meaning of Key Term “Government”,
Section 65B. Interpretations ‘(26A) “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;’;
Meaning of Key Term“Local Authority”
Section 65B. Interpretations (31) “local authority” means- (a) a Panchayat as referred to in clause (d) of article 243 of the Constitution; (b) a Municipality as referred to in clause (e) of article 243P of the Constitution; (c) 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; (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;
Meaning of Key Term” Business Entity”
Section 65B. Interpretations (17) “business entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business.
Meaning of Key Term “Support Services
Section 65B. Interpretations (49)“Support services” has been defined 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 immovable property, security, testing and analysis.
Exemption
Through Notification No. 7/2016-ST dated 18.2.2016, Central Government has introduced a new Entry No. 48 in Notification No. 25/2012-ST which is stated infra:
“Services provided by Government or local authority to a business entity with a turnover up to Rs. 10 lakh in the preceding Financial year”
Thus, the services provided to a business entity up to turnover of ten lakh in previous year will be exempt from service tax.
POINT OF TAXATION RULES
the Point of Taxation Rules, 2011, in rule 7, after the third proviso, the following proviso shall be inserted namely:-
“Provided also that in case of services provided by the Government or local authority to any business entity, the point of taxation shall be the earlier of the dates on which, –
(a) any payment, part or full, in respect of such service becomes due, as specified in the invoice, bill, challan or any other document issued by the Government or local authority demanding such payment; or
(b) payment for such services is made.
Notification No. 24/2015 wef 13th April, 2016
CLARIFICATION BY CIRCULAR No. 192/02/2016-SERVOCE TAX
* Services provided by Government or a local authority to another Government or a local authority.
– Such services have been exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016 [Entry 54 refers]. However, the said exemption does not cover services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994.
* Services provided by Government or a local authority to an individual who may be carrying out a profession or business.
1. Services by way of grant of passport, visa, driving license, birth or death certificates have been exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016 [Entry 55 refers].
2. Further, for services provided upto a taxable value of Rs 5000/-, Sl. No. 5 below may please be seen.
* Service Tax on taxes, cesses or duties.
– Taxes, cesses or duties levied are not consideration for any particular service as such and hence not leviable to Service Tax. These taxes, cesses or duties include excise duty, customs duty, Service Tax, State VAT, CST, income tax, wealth tax, stamp duty, taxes on professions, trades, callings or employment, octroi, entertainment tax, luxury tax and property tax.
* Service Tax on fines and penalties.
1. It is clarified that fines and penalty chargeable by Government or a localauthority imposed for violation of a statute, bye-laws, rules or regulations are not leviable to Service Tax.
2. Fines and liquidated damages payable to Government or a local authority for non-performance of contract entered into with Government or local authority have been exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016 [Entry 57 refers].
* Services provided in lieu of fee charged by Government or a localauthority.
1. It is clarified that any activity undertaken by Government or a local authority against a consideration constitutes a service and the amount charged for performing such activities is liable to Service Tax. It is immaterial whether such activities are undertaken as a statutory or mandatory requirement under the law and irrespective of whether the amount charged for such service is laid down in a statute or not. As long as the payment is made (or fee charged) for getting a service in return (i.e., as a quid pro quo for the service received), it has to be regarded as a consideration for that service and taxable irrespective of by what name such payment is called. It is also clarified that Service Tax is leviable on any payment, in lieu of any permission or license granted by the Government or a local authority.
2. However, services provided by the Government or a local authority by way of:
(i) registration required under the law;
(ii) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under the law, have been exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016 [Entry 58 refers].
3. Further, services provided by Government or a local authority where the gross amount charged for such service does not exceed Rs 5000/- have been exempted vide NNotification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016 [Entry 56 refers]. However, the said exemption does not cover services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994. Further, in case of continuous service, the exemption shall be applicable where the gross amount charged for such service does not exceed Rs. 5000/- in a financial year.
4. It is also clarified that Circular No.89/7/2006-Service Tax dated 18-12-2006 & and Reference Code 999.01/23.8.07 in Circular No. 96/7/2007-ST dated 23.8.2007 issued in the pre-negative list regime are no longer applicable.
* Services in the nature of allocation of natural resources by Government or a local authority to individual farmers
Services by way of allocation of natural resources to an individual farmer for the purposes of agriculture have been exempted vide Notification No. 25/2012–ST dated 20.6.2012 as amended by Notification No. 22/2016-ST dated 13.04.2016 [Entry 59 refers]. Such allocations/auctions to categories of persons other than individual farmers would be leviable to Service Tax.
* Services in the nature of change of land use, commercial building approval, utility services provided by Government or a local authority.
– Regulation of land-use, construction of buildings and other services listed in the Twelfth Schedule to the Constitution which have been entrusted to Municipalities under Article 243W of the Constitution, when provided by governmental authority are already exempt under Notification No. 25/2012–ST dated 20.6.2012. The said services when provided by Government or a local authority have also been exempted from Service Tax vide Notification No. 25/2012–ST dated 20.6.2012 as amended by Notification No. 22/2016-ST dated 13.04.2016 [Entry 39 refers].
* Services provided by Government, a local authority or a governmental authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution.
– Such services have been exempted vide Notification No. 25/2012–ST dated 20.6.2012 as amended by Notification No. 22/2016-ST dated 13.04.2016[Entry 60 refers].
* Whether Service Tax is payable on yearly installments due after 1.4.2016 in respect of spectrum assigned before 1.4.2016.
– Service Tax is payable on such installments in view of rule 7 of Point of Taxation Rules, 2011 as amended by vide Notification No. 24/2016 – ST dated 13.4.2016. However, the same have been specifically exempted vide Notification No. 25/2012–ST dated 20.6.2012 as amended by Notification No. 22/2016-ST dated 13.04.2016 [Entry 61 refers]. The exemption shall apply only to Service Tax payable on one time charge, payable in full upfront or in installments, for assignment of right to use any natural resource and not to any periodic paymentrequired to be made by the assignee, such as Spectrum User Charges, license fee in respect of spectrum, or monthly payments with respect to the coal extracted from the coal mine or royalty payable on extracted coal which shall be taxable.
* When does the liability to pay Service Tax arise upon assignment of right to use natural resource where the payment of auction price is made in 10 (or any number of) yearly (or periodic) instalments under deferred payment option for rights assigned after 1.4.2016.
– Rule 7 of the Point of Taxation Rules,2011 has been amended vide Notification No. 24/2016 – ST dated 13.4.2016 to provide that in case of services provided by Government or a local authority to any business entity, the point of taxation shall be the earlier of the dates on which:
(a) any payment, part or full, in respect of such service becomes due, as indicated in the invoice,bill, challan, or any other document issued by Government or a local authority demanding such payment; or
(b) such payment is made. Thus, the point of taxation in case of the services of the assignment of right to use natural resources by the Government to a business entity shall be the date on which any payment, including deferred payments, in respect of such assignment becomes due or when such payment is made, whichever is earlier. Therefore, if the assignee/allottee opts for full upfront payment then Service Tax would be payable on the full value upfront.However, if the assignee opts for part up front and remainder under deferred payment option, then Service Tax would be payable as and when the payments are due or made, whichever is earlier.
* How to determine the date on which payment in respect of any service provided by Government or a local authority becomes due for determination of point of taxation (Sl. No. 10 refers)?
– The date on which such payment becomes due shall be determined on the basis of invoice, bill, challan, or any other document issued by the Government or a local authority demanding such payment [Point of Taxation Rules, 2011 as amended by Notification No. 24/2016 – ST dated 13.4.2016 refers]. For instance, Notice Inviting Applications (NIA) dated January 9, 2015 issued vide File No. 1000/16/2014-W.F./Auction for auction of right to use spectrum and letter dated March 29, 2015 issued vide File No. 1000 /23 / 2014 -W.F. /Auction by Department of Telecommunications to successful bidders of spectrum indicate the dates on which the payments in respect thereof become due. These may be accessed at http://www.dot.gov.in/sites/default/files/u 8/NIA_January_2015.pdf and http://www.dot.gov.in/sites/default/files/u 8/PaymentMethodologyAndPaymentDetai ls.pdf respectively.
*Whether Service Tax is leviable on spectrum user charges and license fee payable after 1.4.2016 for the year 2015-16.
– Rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006 has been amended vide Notification No. 23/2016 – ST dated 13.4.2016 so as to provide that interest chargeable on deferred payment in case of any service provided by Government or a local authority to a business entity, where payment for such service is allowed to be deferred on payment of interest, shall be included in the value of the taxable service.
* When and how will the allottee of the right to use natural resource be entitled to take CENVAT Credit of Service Tax paid for such assignment of right.
– The CENVAT Credit Rules, 2004 have been amended vide Notification No. 24/2016 C.E. (N.T.) dated 13.4.2016. Consequently, the CENVAT Credit of the Service Tax on one time charges (whether paid upfront or in installments) paid in a year, may be allowed to be taken evenly over a period of 3 (three) years. [Rule 4(7) of CENVAT Credit Rules, 2004 as amended refers]. Detailed illustrations explaining how the CENVAT Credit is to be availed, are given in para 2 below.
Also,Check negative list of service tax.
However, the Service Tax paid on spectrum user charges, license fee, transfer fee charged by the Government on trading of spectrum would be available in the year in which the same is paid. Likewise, Service Tax paid on royalty in respect of natural resources and any periodic payments shall be available as credit in the year in which the same is paid. The existing eighth proviso in sub-rule (7) of rule 4 of CENVAT Credit Rules, 2004 is being omitted because the same is superfluous. Amendments have also been made in CENVAT Credit Rules, 2004 so as to allow CENVAT credit to be taken on the basis of the documents specified in subrule (1) of rule 9 of CENVAT Credit Rules, 2004 even after the period of 1 year from the date of issue of such a document in case of services provided by the Government or a local authority or any other person by way of assignment of right to use any natural resource [Fifth Proviso to sub-rule (7) of Rule 4 of CENVAT Credit Rules, 2004].
*On basis of which documents can CENVAT Credit be availed in respect of services provided by Government or a local authority.
– CENVAT Credit may be availed on the basis of challan evidencing payment of Service Tax by the Service recipient [Clause (e) of sub-rule (1) of rule 9 of CENVAT Credit Rules, 2004, refers].
