CBEC
Clarifications on Scope and Exemptions on Taxation of Services by Government
[Service Tax Circular
No. 192 dated 13th April 2016]
Subject: - Clarification on issues regarding
levy of Service Tax on the services provided by Government or a local authority
to business entities.
Any service provided by Government or a local
authority to a business entity has been made taxable w.e.f
1st April 2016. Post Budget 2016, representations have been received from
several quarters including business and industry associations in respect of
various aspects pertaining to the taxation of such services. Accordingly, the
following clarifications are issued:-
Sl. No. |
Issue |
Clarification |
1. |
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. |
2. |
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. |
3. |
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. |
4. |
Service Tax on fines and penalties. |
1. It is clarified that fines and penalty
chargeable by Government or a local authority 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]. |
5. |
Services provided in lieu of fee charged by
Government or a local authority. |
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 Notification 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. |
6. |
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 13.4.2016 [Entry 59 refers].
Such allocations/auctions to categories of persons other than individual
farmers would be leviable to Service Tax. |
7. |
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
13.4.2016 [Entry 39 refers]. |
8. |
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 13.4.2016[Entry 60 refers]. |
9. |
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 13.4.2016 [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
payment required 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. |
10. |
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 upfront and remainder under deferred payment option, then Service Tax
would be payable as and when the payments are due or made, whichever is
earlier. |
11. |
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/Payment Methodology And Payment Details.pdf respectively. |
12. |
Whether Service Tax is leviable
on spectrum user charges and license fee payable after 1.4.2016 for the year
2015-16. |
Service Tax is payable on such payments in view
of rule 7 of Point of Taxation Rules, 2011 as amended
by 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 13.4.2016 [Entry 62
refers]. |
13. |
Whether Service Tax is payable on the interest
charged by Government or a local authority where the payment for assignment
of natural resources is allowed to be made under deferred payment option. |
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. |
14. |
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. 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 sub-rule (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]. |
15. |
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]. |
2. Illustration explaining how the CENVAT Credit
is to be availed on Service Tax paid for assignment of right to use natural
resources:
Government of India
assigns right to use spectrum for a period of 20 years in an auction held in
May 2016. The Notice Inviting Application (NIA) for auction of spectrum
specifies that the successful bidders would have two payment options –
(a) Full upfront payment:
to make full upfront payment of full auction price
(bid amount) by, let’s say, 25.6.2016;
or
(b) Deferred
payment:
(i) An upfront payment of 33% of the final bid
amount shall be made by 25.6.2016;
(ii) There shall be a moratorium of 2 years for
payment of balance amount of one time charges for the spectrum, which shall be
recovered in 10 equal annual instalments of Rs. 131.94 including interest for deferred payment.
(iii) The 1st instalment of the balance due shall
become due on the third anniversary of the scheduled date of the first payment.
Subsequent instalment shall become due on the same date of each following year.
(iv) The
applicable rate of interest under deferred payment option shall be 10%.
CASE 1:
Company ABC becomes the successful bidder.
The spectrum is assigned to ABC for a total consideration of Rs. 1000/-. ABC chooses to make full upfront payment
on the due date. The Service Tax liability and eligibility of the CENVAT Credit
in this case would be as follows:
(i) The amount of Rs. 1000/- will become due on 25.6.2016. Thus, according
to rule 7 of the Point of Taxation Rules, 2011 the point of
taxation shall be 25.6.2016.
(ii) According to rule 6(1) of
the Service Tax Rules, 1994, the liability to pay Service Tax liability of
Rs. 150/- on the
consideration of Rs. 1000/- paid or payable
would be required to be discharged by 6.7.2016.
(iii) According to the sixth proviso
to rule 4(7) of the CENVAT Credit Rules, the CENVAT Credit in
respect of the Service Tax paid would be spread over 3 years as follows:
Financial
Year |
Amount
of CENVAT Credit eligible to be taken (1/3
of total Service Tax paid) |
2016-17 |
Rs. 50/- |
2017-18 |
Rs. 50/- |
2018-19 |
Rs.
50/- |
CASE 2:
In the above example, ABC assigns the right
to use the spectrum to Company XYZ on 1.8.2019 (and issues invoice dated
1.8.2019) for a consideration of Rs. 930/-. The Service Tax liability and eligibility
of CENVAT Credit would be as follows:
F.Y. |
Due date for payment |
Amount payable by ABC for assignment of spectrum
(Rs.) |
Amount charged by ABC for further assignment of
spectrum to XYZ (Rs.) |
Service Tax liability on ABC @ 15% (Rs.) |
Date of Point of Taxation |
Date of payment of Service Tax |
CENVAT Credit available to ABC in the relevant
F.Y. (Rs.) |
CENVAT Credit available to XYZ in the relevant
F.Y. (Rs.) |
2016-17 |
25.6.2016 |
1000 |
- |
150 |
25.6.2016 |
6.7.2016 |
50 |
- |
2017-18 |
- |
- |
- |
- |
- |
- |
50 |
- |
2018-19 |
- |
- |
- |
- |
- |
- |
50 |
- |
2019-20 |
|
|
930 |
139.50 |
1.8.2019 |
6.9.2019 |
- |
46.5 |
2020-21 |
- |
- |
- |
- |
- |
- |
- |
46.5 |
2021-22 |
- |
- |
- |
- |
- |
- |
- |
46.5 |
TOTAL |
|
|
|
289.5 |
|
|
150 |
139.5 |
CASE 3:
Company ABC becomes the successful bidder.
The spectrum is assigned to ABC for a total consideration of Rs. 1000/-. ABC chooses the deferred payment option.
The payment schedule, Service Tax liability and eligibility of CENVAT Credit
would be as follows:
F.Y. |
Instalment |
Due
date for payment |
Amount
payable (Rs.) |
Service
Tax liability @ 15% (Rs.) |
Date
of Point of Taxation |
Date
of payment of Service Tax |
Eligible
CENVAT Credit in the relevant F.Y. (Rs.) |
2016-17 |
Upfront
payment (33%) |
25.6.2016 |
330 |
49.50 |
25.6.2016 |
6.7.2016 |
16.5 |
2017-18 |
- |
- |
- |
- |
- |
- |
16.5 |
2018-19 |
- |
- |
- |
- |
- |
- |
16.5 |
2019-20 |
1st |
25.6.2019 |
131.94 |
19.80 |
25.6.2019 |
6.7.2019 |
6.60* |
2020-21 |
2nd |
25.6.2020 |
131.94 |
19.80 |
25.6.2020 |
6.7.2020 |
6.60 + 6.60* |
2021-22 |
3rd |
25.6.2021 |
131.94 |
19.80 |
25.6.2021 |
6.7.2021 |
6.60 + 6.60 + 6.60* |
2022-23 |
4th |
25.6.2022 |
131.94 |
19.80 |
25.6.2022 |
6.7.2022 |
6.60 + 6.60 + 6.60* |
2023-24 |
5th |
25.6.2023 |
131.94 |
19.80 |
25.6.2023 |
6.7.2023 |
6.60 + 6.60 + 6.60* |
2024-25 |
6th |
25.6.2024 |
131.94 |
19.80 |
25.6.2024 |
6.7.2024 |
6.60 + 6.60 + 6.60* |
2025-26 |
7th |
25.6.2025 |
131.94 |
19.80 |
25.6.2025 |
6.7.2025 |
6.60 + 6.60 + 6.60* |
2026-27 |
8th |
25.6.2026 |
131.94 |
19.80 |
25.6.2026 |
6.7.2026 |
6.60 + 6.60 + 6.60* |
2027-28 |
9th |
25.6.2027 |
131.94 |
19.80 |
25.6.2027 |
6.7.2027 |
6.60 + 6.60 + 6.60* |
2028-29 |
10th |
25.6.2028 |
131.94 |
19.80 |
25.6.2028 |
6.7.2028 |
6.60 + 6.60 + 6.60* |
2029-30 |
- |
- |
- |
- |
- |
- |
6.60 + 6.60 |
2030-31 |
- |
- |
- |
- |
- |
- |
6.60 |
TOTAL |
|
|
|
247.5 |
|
|
247.5 |
Note: Figures with * indicate the amount of
CENVAT credit available against Service Tax paid during that year.
CASE 4:
In the above example, if ABC further assigns
the right to use the spectrum to Company XYZ on 1.8.2020 for a consideration of
Rs. 200/-. The Service Tax liability and eligibility
of CENVAT Credit would be as follows:
F.Y. |
Instalment |
Due
date for payment |
Amount
payable to Govt for assignment of spectrum (Rs.) ABC |
Amount
charged by ABC for further assignment of spectrum to XYZ (Rs.) |
Amount
payable to Govt for assignment of spectrum (Rs.) XYZ |
Service
Tax liability @ 15% (Rs.) ABC |
Service
Tax liability @ 15% (Rs.) XYZ |
Date
of Point of Taxation |
Date
of payment of Service Tax |
Eligible
CENVAT Credit in the relevant F.Y. (Rs.) ABC |
Eligible
CENVAT Credit in the relevant F.Y. (Rs.) XYZ |
2016-17 |
Upfront
payment (33%) |
25.6.2016 |
330 |
- |
- |
49.50 |
- |
25.6.2016 |
6.7.2016 |
16.5 |
- |
2017-18 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
16.5 |
- |
2018-19 |
- |
- |
- |
- |
- |
- |
- |
- |
- |
16.5 |
- |
2019-20 |
1st |
25.6.2019 |
131.94 |
- |
- |
19.80 |
- |
25.6.2019 |
6.7.2019 |
6.60* |
- |
2020-21 |
2nd |
25.6.2020 |
131.94 |
200 |
- |
19.80
(on 2nd Instalment) + 30 (for further assignment to XYZ) |
- |
25.6.2020
(in respect of the 2nd installment) and 1.8.2020
(in respect of further assignment to XYZ) |
6.7.2020
(in respect of the 2nd installment) and 6.9.2020
(in respect of further assignment to XYZ) |
6.60
+ 6.60* + 19.80 (being balance CENVAT Credit) |
30/3
= 10* |
2021-22 |
3rd |
25.6.2021 |
- |
- |
131.94 |
- |
19.80 |
25.6.2021 |
6.7.2021 |
- |
10 + 6.60* |
2022-23 |
4th |
25.6.2022 |
- |
- |
131.94 |
- |
19.80 |
25.6.2022 |
6.7.2022 |
- |
10 + 6.60
+ 6.60* |
2023-24 |
5th |
25.6.2023 |
- |
- |
131.94 |
- |
19.80 |
25.6.2023 |
6.7.2023 |
- |
6.60
+ 6.60
+ 6.60* |
2024-25 |
6th |
25.6.2024 |
- |
- |
131.94 |
- |
19.80 |
25.6.2024 |
6.7.2024 |
- |
6.60
+ 6.60
+ 6.60* |
2025-26 |
7th |
25.6.2025 |
- |
- |
131.94 |
- |
19.80 |
25.6.2025 |
6.7.2025 |
- |
6.60
+ 6.60
+ 6.60* |
2026-27 |
8th |
25.6.2026 |
- |
- |
131.94 |
- |
19.80 |
25.6.2026 |
6.7.2026 |
- |
6.60
+ 6.60
+ 6.60* |
2027-28 |
9th |
25.6.2027 |
- |
- |
131.94 |
|
19.80 |
25.6.2027 |
6.7.2027 |
- |
6.60
+ 6.60
+ 6.60* |
2028-29 |
10th |
25.6.2028 |
- |
- |
131.94 |
|
19.80 |
25.6.2028 |
6.7.2028 |
- |
6.60
+ 6.60
+ 6.60* |
2029-30 |
- |
- |
- |
- |
- |
- |
|
- |
- |
- |
6.60
+ 6.60 |
2030-31 |
- |
- |
- |
- |
- |
- |
|
- |
- |
- |
6.60 |
TOTAL |
|
|
|
|
|
119.10 |
158.40 |
|
|
89.10 |
188.40 |
Note: Figures with * indicate the amount of
CENVAT credit available against Service Tax paid during that year.
3. All concerned are requested to acknowledge the
receipt of this Circular.
4. Wide publicity may be given so that the assessees and public are aware of the above. All the major
Industry and Trade Associations may be informed accordingly. Difficulty if any,
in the implementation of the Circular should be brought to the notice of the
Tax Research Unit.