Levy of Service Tax on Services Provided By Government or Local Authority to Business Entities

Levy of Service Tax on Services Provided By Government or Local Authority to Business Entities

www.carajput.com;Service Tax Update

www.carajput.com;Service Tax Update

CIRCULAR NO.192/02/2016-STDATED 13-4-2016 : 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 byNotification 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 exemptedvide 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 byvide Notification No. 24/2016-ST dated 13-4-2016.

However, the same have been specifically exemptedvide 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/u8/NIA_January_2015.pdf and http://www.dot.gov.in/sites/default/files/u8/PaymentMethodologyAndPaymentDetails.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 exemptedvide 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 videNotification 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 amendedvide 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].

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

INCOME TAX UPDATE 18 NOVEMBER 2015

INCOME TAX ACT

Untitled8SECTION 2(15)

CHARITABLE PURPOSE

Object of general public utility : Where assessee was carrying on micro finance business in a commercial manner, its activities fell under category of ‘advancement of any other object of general public utility’ and thereby hit by proviso to section 2(15) disentitling it from exemption

SECTION 37(1)

BUSINESS EXPENDITURE – ALLOWABILITY

Repairs : Expenditure incurred by assessee towards fixing false ceiling, painting, electrical cabling and certain civil works in rented premises was to be allowed as business expenditure

SECTION 73

LOSSES – IN SPECULATION BUSINESS

Shares : Where assessee, a share broker, suffered loss on account of misdeals in purchase and sale of shares by actual delivery, or trading in derivatives in a recognised stock exchange, said loss was to be regarded as business loss which could be set off against its brokerage income

SECTION 80-IB

DEDUCTIONS – PROFITS AND GAINS FROM INDUSTRIAL UNDERTAKING OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS

Housing project : Fact that assessee, a builder, had not completed construction of all blocks of housing project, within stipulated period, would not deprive assessee from availing of deduction under section 80-IB (10) in respect of each of completed block on stand alone basis

SECTION 92C

TRANSFER PRICING – COMPUTATION OF ARM’S LENGTH PRICE

CPM is not a residuary method in the sense that if every other method of ascertaining the arm’s length price fails, CPM can be applied on the basis of imperfect data. If at all there is a residuary method, or what is termed as the method of last resort, it is transactional net margin method. TNMM has almost become the ‘default’ method for taxpayers in recent years

Determination of ALP : Where JMIPL, a contract manufacturer in a capital intensive industry, and car manufacturer MUL agreed on an arrangement where JMIPL would sell finished catalysts to vendors of MUL under instructions of MUL and JMIPL was obliged to procure raw material on instructions of MUL at a price dictated by MUL from source selected by MUL and JMIPL was entitled to a per unit fixed manufacturing charge whereas entire cost of raw materials passed on to or recovered from ultimate customer without any mark up, there was no fault in rejecting Return on Capital Employed (ROCE) as PLI and alternate PLI being OP/TC-RMC i.e., (Operating Cost/Total Cost excluding raw material cost) was to be accepted

Comparables and adjustments/Method of computation – Resale Price Method : Where selection of TNMM by department had been found to be inappropriate by Tribunal in earlier years and assessee’s RPM had been accepted on identical facts, TPO was directed to adopt RPM as most appropriate method for benchmarking assessee’s transaction of import of seeds to its AE in relevant year

Comparables and adjustments/Adjustments – Exports, in case of : While computing ALP it was wrong to compare individual transactions of import of raw cashew with monthly average price published in cashew Bulletin of cashew Export Council

Comparables and adjustments/Adjustments – Interest : While determining ALP of transaction of purchase from AE, due weightage is to be given towards interest benefit enjoyed by assessee by availing credit for 150 days for payment

SECTION 220

COLLECTION AND RECOVERY OF TAX – WHEN TAX PAYABLE AND WHEN ASSESSEE DEEMED IN DEFAULT

Stay : In view of Instruction No. 1914 Assessing Officer has got ample power to dispose of stay application during pendency of appeal in which demand is disputed; if Assessing Officer had completely overlooked stay application, he had to consider same

WEALTH TAX ACT

SECTION 7

VALUATION OF ASSETS – IMMOVABLE PROPERTY

Land : Where vacant land in excess of ceiling limit under Ceiling Act, which was going to be taken over by Government, would not fetch more than Rs. 2 lakhs, Assessing Officer was not justified in working out value of vacant land by determining what it would have fetched, if it were sold in open market

COMPANIES ACT

SECTION 433

WINDING UP – CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP

Where petitioner firm failed to prove that respondent company was insolvent in commercial sense and company’s refusal to pay debt to petitioner, a chartered accountancy firm, was as a result of bonafide dispute, company was not liable to be wound up

SERVICE TAX

SECTION 65(31)

CONSULTING ENGINEER’S SERVICES

Where applicant executed work of construction of mess, quarters etc., for staff of army, issue as to whether such activity would fall under category of consulting engineer’s services or not was debatable; matter was to be readjudicated

SECTION 89

OFFENCES AND PENALTIES – SERVICE TAX

Finance Act, 1994, being a special and complete Code, prevails over general provisions of IPC and, accordingly, for alleged non-payment of service tax, department cannot filed FIR under provisions of IPC

CENTRAL EXCISE ACT

SECTION 2(f)

MANUFACTURE – MANUFACTURER/JOB-WORKER

Merely because principal manufacturer has extended loan to job-worker for investment in machinery, job-worker cannot be regarded as dummy of principal manufacturer

SECTION 9D

RELEVANCY OF STATEMENTS UNDER CERTAIN CIRCUMSTANCES

In absence of any extraordinary circumstances, denial of cross-examination citing that ‘there is no requirement in law’ or ‘it would delay adjudication’ was unjustified and said denial vitiated entire adjudication and, therefore, demand was set aside

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com  or call at 9555555480

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)