Ready Reckoner for Applicability of Service Tax on services provided by Government & Local Authorities (April 2016)

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st July 2012 and negative list of services was provided u/s 66D of The Finance Act 1944, which is reproduced below: 66D services by Government or a local authority excluding the following services to the extent they are not covered elsewhere:

  1. 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;
  2. services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
  3. transport of goods or passengers; or
  4. (iv) support services, other than services covered under clauses (i) to (iii) above, provided to business entities;

The word “Support Services” was substituted with all services vide The Finance Act 2015, which was made effective from 01.06.2015. However, effective date of amendment of the section was notification w.e.f. 01.04.2016 thereby all services provided by the Govt. is subject to service tax on reverse charge basis.

In my article published in our Bulletin in the month of April 2012 provides the Frequently Asked Questions (FAQ), wherein I have clarified what is Govt.? and What are the services provided by the Govt.? which is reproduced below…

Quote 1. What is Government? Though Government has not been defined, General Clause Act, 1897 will be applicable and Government includes State Government, Central Government, and State includes Union Territories 2. Please explain, which services offered by the government will be covered under the definition of service, by giving suitable examples. All services other than following provided by the government are excluded from the definition of service:
  • 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;
Some of the examples are: providing Birth / Death Certificate, Marriage Certificate, Completion Certificate, Passport, etc. etc. Un Quote Since, all services provided by Govt. are now excluded from the negative List by amending Sec 66D which has been made effective from 1st April 2016 and hence recipient of such services from the govt. have to discharge 100% service tax liability on Reverse Charge Mechanism. Generally, any citizen or a person pays the Govt. the followings:
  • Duties, taxes,
  • Fine & penalties relating to default in following the law
  • Fees / Charges for registration, licensing, permissions / permits, Authorizations
  • Charges paid to the Govt. for coal blocks, spectrum,
  • Charges paid for providing amenities
  • Court Fees
  • Stamp Duty
  • Fees for Passport, Visa, Driving License, Birth / Death Certificate
The attempt has been made in this article to provide ready reckoner on various amount paid to Central Govt., State Govt. and Local Authorities. CBEC has already issued details clarificative circular No. 192/02/2016 – ST dtd. 13.04.2016 in very simplified manner and that has been also considered in this article.

Sr. No.

 Particulars for which amount is paid to the Govt. Taxable or Not Taxable

Comments
1.               Duties & Taxes Not Taxable “Taxation” includes the imposition of any tax or impost, whether general or local or special, and ‘tax’ shall be construed in accordance with article 366(28) of Constitution of India. It includes taxes levied by Central or State legislatures, and also those known as ‘rates’, or other charges, levied by local authorities under statutory powers. Whereas, Tax is having a wider sense includes all imposts. Imposts in the context have following characteristics – a.     Imposing the tax is the sovereignty powers of the Central Govt., State Govt. & Local Authorities under the law. b.     “Law” in the context of Article 265 means an Act of legislature and cannot comprise of an executive order or rule without express statutory authority c.     The term ‘tax’ under article 265 read with Article 366(28) includes imposts of every kind viz. tax, duty, cess or fees d.     As an incident of sovereignty and in the nature of compulsory exaction, a liability founded on principle of contract cannot be a ‘tax’ in its technical sense as an impost, general, local or special To conclude, payment of duties & taxes is not on account of providing any service by the Govt. The said Board Circular also clarifies the same & illustrations of the taxes has been given so as to clarify Excise Duty, Custom Duty, Service Tax, State VAT, CST, Income Tax, Wealth Tax, Stamp Duty, Taxes on profession, Employment Tax, Octroi / LBT, Entry Tax, Entertainment Tax, Luxury Tax & Property Tax.
2.               Fine & penalties relating to default in following the law Not Taxable Fines & Penalties chargeable by Govt. or Local Authorities on account of violation of a statute, bye-laws, rules or regulations are not leviable to Service Tax.
3.               Fees / Charges for registration, licensing, Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism
4.               Fees / Charges for permissions / permits Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism
5.               Fees / Charges for Authorization Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism
6.               Charges paid to the Govt. for Royalty for extraction of natural resources Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Taxable other than specified in 7 & 9 (Not Taxable).
7.               Charges paid to the Govt. for allocation of natural resources to an individual farmer Not Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. However, it has been clarified by the Board that 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.
8.               Charges paid to the Govt. for allocation of natural resources to other than individual farmer Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Exempted has been granted to the individual farmer only.
9.               Charges paid to the Govt. for coal blocks, spectrum – One-time payment Not Taxable 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
10.             Charges paid to the Govt. for coal blocks, spectrum – in Installment or periodical payment, spectrum usage charges w.r.t. coal mines or royalty payable on extracted coal Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Such payment do not cover vide Notification No. 22/2016 – ST dated 13.4.2016.
11.             Charges paid for providing Amenities Taxable If Government levies some charges for providing amenities, these should be subject to service tax. However, charges for supplying electricity or water should not be subject to service tax, as these are ‘goods’. Supply of goods cannot be a ‘service’.
12.             Court Fees Not Taxable Court fee and payment made to arbitration / tribunal is excluded from the definition of “service” and hence no service tax is payable.
13.             Stamp Duty Not Taxable Board has clarified vide circular dtd. 13.04.2016 that stamp duty collected is not in nature of consideration and hence not covered under the definition of “Services”.
14.             Fees for Passport & Visa Not Taxable

Though certain privilege has been provided to the recipients, such service is specifically exempted vide Notification No. 22/2016 dtd. 13.04.2016.
15.             Fees for Driving License / Renewal / Duplicate Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Such payment do not cover vide Notification No. 22/2016 – ST dated 13.4.2016.
16.             Fees for Birth / Death Certificate   Not Taxable Though certain privilege has been provided to the recipients, such service is specifically exempted vide Notification No. 22/2016 dtd. 13.04.2016.
17.             ROC Fees paid to Ministry of Corporate Affairs Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Such payment do not cover vide Notification No. 22/2016 – ST dated 13.4.2016.
18.             Agricultural Tax collected by Talathi / Tahasildar Not Taxable It is exempted by Notification No. 22/2016 – ST dated 13.4.2016 being functions entrusted to Panchayat under Article 243 G of the Constitution.
19.             Fees of 7/12 Extract / City Survey Extract Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Such payment do not cover vide Notification No. 22/2016 – ST dated 13.4.2016.
20.             Fines, penalties compensation paid for Non-performance of contract entered into with Government or local authority Not Taxable Though certain privilege has been provided to the recipients, such service is specifically exempted vide Notification No. 22/2016 dtd. 13.04.2016.
21.             PF Administration Fees & Annuity Charges Not Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. However, this is exempted vide notification No. 9/2016 ST dtd. 01.03.2016 effective from 1st April 2016, which provides the exemption for Services of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority of India (PFRDA) under the Pension Fund Regulatory And Development Authority Act, 2013 (23 of 2013) and services provided by Employees ‟Provident Fund Organization (EPFO) to persons governed under the Employees‟ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952);
22.             Motor Vehicle Inspection Not Taxable Though certain privilege has been provided to the recipients, such service is specifically exempted, since it is in relation to testing, calibration, safety check and certification in relation to consumer & public at large required under RTO Act vide Notification No. 22/2016 dtd. 13.04.2016
23.             MOT Charges t Central Excise & Customs Not Taxable Though certain privilege has been provided to the recipients, such service is specifically exempted vide Notification No. 22/2016 dtd. 13.04.2016.
24.             Penalty, fee for late filing of return Not Taxable It is the penalty on violation of specific Act / Rules.
25.             Composition fees paid in accordance to order of Settlement Commission Not Taxable Though certain privilege has been provided to the recipients, such service is specifically exempted vide Notification No. 22/2016 dtd. 13.04.2016
26.             Any payment to the Govt. for services provided more than Rs. 5000/- per annum Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Such payment do not cover vide Notification No. 22/2016 – ST dated 13.4.2016
27.             Any payment to the Govt. for services provided less than Rs. 5000/- per annum Not Taxable If amount is less than Rs. 5000/- per annum then it is exempted.
28.             Building Plan Approval Fees, charges for change of land use and other utilities approval Not Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism but the same is exempted vide notification no. 22/2016 ST dtd. 13.04.2016. Such payment do not cover vide Notification No. 22/2016 – ST dated 13.4.2016
29.             Water Charges Not Taxable Since it is supply of water and not supply of service and hence no service tax is payable.
30.             Registration Fees for registering Title Documents Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Registration fees is collected over & above Stamp Duty and separately and hence it is not in nature of duties but to the consideration for providing certain services. Such payment do not cover vide Notification No. 22/2016 – ST dated 13.4.2016
31.             Fees paid under Right to Information Act. Taxable This activity is carried by Central / State Govt. for beneficiary person / desirous to obtain certain privileges for consideration i.e. fees & charges and hence it is covered under the definition of “Service” and not been exempted and hence Taxable under reverse Charge Mechanism. Such payment do not cover vide Notification No. 22/2016 – ST dated 13.4.2016
32.             Interest charge by the Govt. Not Taxable. Taxable only if, payment is made on installment / deferred payment basis It is excluded from the definition of service. However, if service tax is payable on the original amount on deferred payment, then it will be taxable as the part of service being included in the taxable value in accordance with Rule 6(2)(iv) of the service tax (Determination of Value) Rules 2006 as amended vide Notification No. 23/2016 ST dtd. 13.06.2016.
We had specified in our article published in the month of April 2015, where certain test were provided for determination of applicability of service tax which are reproduced below: Quote: Now, once the above provisions and definition of the law are understood, to decide whether any Government or a Local Body Service will attract Service Tax under reverse charge or not, one need to apply the final test “SGBCE TEST”:–
  1. Whether there is an activity performed / service provided by the Government or a Local Authority which falls under the definition of Service as per “SERVICE TEST”?
  2. Whether such activity is performed / service is provided by a Government or a Local Authority “CHARGEABILITY TEST”?
  3. Whether such activity is performed / service is provided to a Business Entity “CHARGEABILITY TEST”?
  4. Whether there is a Consideration for such activity / service “CHARGEABILITY TEST”?
  5. Whether such activity carried out / service provided is covered under Exemption / Negative list of service or falls under exclusion portion of the definition of a service under “SERVICE TEST” including exemption category?
Un- Quote Though an attempt is made to provide all types of payment collected by Central / State Govt. & Local Authorities in the above Ready Reckoner, still some categories are left out then above test to be applied for deciding taxability of service tax and payment thereof under Reverse Charge Mechanism. Following services though not provided by Govt. but are provided by body constituted by the Govt. and services provided by them are not covered under services provided to the Govt., but these are exempted vide Notification No. 9/2016 ST dtd. 01.03.2016 made effective from 1st April 2016.
  1. Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India Act, 1999 (41of 1999);
  2. Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange
  3. Board of India Act, 1992(15 of 1992) by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market;
  4. Services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmer ‟Welfare by way of cold chain knowledge dissemination;”
When service tax is payable? Date & Time of taxable payment is determined based on the Point of Taxation Rules and Notification No. 24/2016 ST dtd. 13.06.2016 to amend Point of Taxation Rules 2011, wherein proviso to Rule 7 has been inserted as below Quote : 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. Unquote It means challan / bill / any document / letter received by the recipient from the Govt. i.e. Central / State Govt. & Local Authorities OR Payment made whichever is earlier. Whether Service Tax is payable on any amount even by small business entity? Yes. Generally Reverse Charge is payable without having any exemption limit but Central Govt. have issued a Notification No. 7/2016 where small business entity having the turnover less than Rs. 10 Lacs in the preceding financial year are exempted from payment of service tax on reverse charge basis. What is the Value on which service tax is paid? Service tax is paid on gross value of amount paid to the Govt. However, when amount is paid in deferred payment system then service tax is payable on the amount including interest. Whether Cenvat is allowed? Cenvat will be allowed if such payment falls under the definition of “Input Service” and is not covered under exclusions as provided in definition of input service. Cenvat credit can be taken against duty paying challan, which is used for payment of service tax on reverse charge basis. However, Notification no. 24/2016 CE (NT) dtd. 13.04.2016 restricts the cenvat, if payment is made on one time charges (lumsum or installment) then service tax is payable on the total amount but credit is allowed in 3 even installment.]]>

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