I. ANALYSES OF APPLICABILITY OF SERVICE TAX ON SERVICES PROVIDED TO GOVERNMENT, LOCAL AUTHORITY OR GOVERNMENTAL AUTHORITY
Services regarding construction, erection etc of Civil Structure, Educational Establishment and Residential Complex—
HISTORY
The exemption in respect of 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 structure meant predominantly for use as–
(i) an educational establishment;
(ii) a clinical establishment; or
(iii) an art or cultural establishment;
(c) a residential complex predominantly meant for self-use or for the use of their employees or other persons specified in Explanation 1 to clause (44) of section 65B of the said Act, under a contract entered into before the 1st day of March, 2015 and on which appropriate stamp duty, where applicable, had been paid before that date.
had been withdrawn vide Notification No. 06/2015-ST dated 01.03.2015 with effect from 01.04.2015.
APPLICABLE W.E.F. 01-03-2016
However, vide Notification No. 09/2016-ST dated 01 March 2016, entry no. 12A in the Notification No. 25/2012-ST dated 20 June 2012 has been inserted and thus effectively, the Ministry of Finance has restored such exemption w.e.f. 01-03-2016, for the services provided under a contract which had been entered into prior to 01 March 2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date.
Further, the exemption is being restored till 31 March 2020.
APPLICABLE W.E.F. ENACTMENT OF FINANCE ACT
In addition to above, the Finance Bill, 2016 had inserted a new Section 102 in the Finance Act, 1994 which provides the supra exemption during the period commencing from the 1st day of April, 2015 and ending with the 29th day of February, 2016 (both days inclusive). It is to be noted here that this section 102 will be applicable w.e.f. the date of enactment of Finance Act.
Services provided by way of construction, erection, maintenance or alteration etc. of canal, dam or other irrigation works –
HISTORY
As per Clause (d) of S.No.12 of the Notification No. 25/2012-ST, services provided to the Government, a local authority or government authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of canal, dam or other irrigation work are exempt from Service tax.
Further, the definition of government authority (as provided in clause (s) of paragraph 2 of the said notification) was amended with effect from 30.01.2014 by virtue of Notification No. 02/2014-ST.
As per the amended definition, “government authority” means an authority or a board or any other body:-
a) Set up by an Act of Parliament or a State Legislature; or
b) Established by government
With 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution.
Hence w.e.f. 30.1.2014, even the authorities set up by the Government not necessarily by an Act of Parliament or state legislature were covered under the definition of Government authority.
Thus, by virtue of said amendment in the definition of government authority, provision of said services to entities set up by Government was exempted w.e.f. 30.01.2014. However, the services prior to 30.01.2016 remained taxable.
APPLICABLE W.E.F. ENACTMENT OF FINANCE ACT
Finance Bill 2016 has proposed to insert a new section 101 to extend the benefit of exemption to the said services provided during the period from the 01.07.2012 to 29.01.2014.
Also the refund of Service tax paid on the said services during the period from the 01.07.2012 to 29.01.2014 shall also be allowed in accordance with the law including the law of unjust enrichment. Application for refund may be allowed to be filed within a period of six months from the date on which Finance Bill, 2016 receives the assent of the President.
Therefore, by virtue of Union Budget 2016, Service tax exemption has been provided in respect of the afore-mentioned services from retrospective effect.
II. ANALYSIS OF APPLICABILITY OF SERVICE TAX ON SERVICES PROVIDED BY GOVERNMENT
Any Services Provided by Government to Business entities
HISTORY
Earlier, all services provided by Government or a local authority were exempt vide Clause (a) of Section 66D Finance Act, 1994 excluding the following services—
- 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;
- services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
- transport of goods or passengers; or
- support services other than services covered under clauses (i) to (iii)above, provided to business entities;
Hence, support services provided by Government to business entities were taxable earlier.
APPLICABLE W.E.F. 01-04-2016
Finance Act, 2015 has amended the Finance Act, 1994 so as to make any service (and not only support services) provided by Government or local authorities to business entities taxable from a notified date. Subsequently, vide Notification No. 06/2016 – ST, the said amendment was made effective from 1st April, 2016.
Consequently, vide Notification No. 15/2016-ST, 01-04-2016 is also being notified as the date from which the definition of support services shall stand deleted from the Finance Act, 1994, which was earlier provided under clause 49 of section 65B.
LIABILITY FOR PAYMENT OF SERVICE TAX
Until Now, support services provided by Government or local authorities to business entities are taxable under reverse charge mechanism i.e. the liability to pay service tax on such services is on the service recipient.
However, with effect from 1stApril, 2016, as discussed supra, any service (and not only support services) provided by Government or local authorities to business entities shall be taxable. Here an important point to note is that tax will be paid under reverse charge mechanism.
Consequently, notification No. 30/2012-ST (notification governing reverse charge) is being amended so as to delete the words “by way of support services” appearing at Sl. No. 6 of the Table and paragraph 1, clause A (iv), item (C) in the said notification. Moreover, 1stApril, 2016 is being notified as the date from which the word “support” shall stand deleted from rule 2(1)(d)(i) (E) of Service Tax Rules, 1994.
Applicability of Service Tax on Radio Frequency Spectrum
APPLICABLE W.E.F. ENACTMENT OF FINANCE ACT
Earlier, there was ambiguity whether to treat the right to use the radio - frequency spectrum transfers by government and subsequent transfers thereof as sale of intangible goods or service.
Finance Bill, 2016 has introduced the service tax applicability on long awaited dispute on such right by adding clause (j) to Section 66E listing the declared service.
Therefore, now, it has been clarified that the transfer of such right is a declared service and it will be taxable from the date when the Finance Bill, 2016 is enacted. The said cause (j) can be read as under:
“(j) assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof.”
CENVAT CREDIT FOR RADIO-FREQUENCY SPECTRUM, MINES ETC.
It is being provided that CENVAT credit of Service Tax paid on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc. shall be spread over the period of time for which the rights have been assigned.
Further, it is also being provided that where the manufacturer of goods or provider of output service further assigns such right to use assigned to him by the Government or any other person, in any financial year, to another person against a consideration, balance CENVAT credit not exceeding the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year.
Moreover, the CENVAT credit of annual or monthly user charges payable in respect of such assignment shall be allowed in the same financial year.
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