Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)
Circular No. 192/02/2016-Service Tax
Dated, 13th April, 2016
To,
Principal Chief Commissioners of Customs and Central Excise (All)
Principal Chief Commissioners of Central Excise & Service Tax (All)
Principal Director Generals of Goods and Service Tax/System/CEI
Director General of Audit/Tax Payer Services
Principal Commissioners/ Commissioners of Customs and Central Excise (All)
Principal Commissioners/Commissioners of Central Excise and Service Tax (All)
Principal Commissioners/Commissioners of Service Tax (All)
Principal Commissioners/Commissioners LTU/Central Excise/Service Tax (Audit)
Subject: - Clarification on issues regarding levy of Service Tax on the services
provided by
Government or a local authority to business entities - reg.
Madam/Sir,
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 an 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/u8/NIA_January_2015.pdf and
http://www.dot.gov.in/sites/default/files/uethodologyAndPaymentDetai
ls.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 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]. |
| 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:
- An upfront payment of 33% of the final bid amount shall be made by
25.6.2016;
- 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.
- The 1st nstalment 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.
- TThe 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:
- 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.
- 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.
- 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 |
Amount |
Amount |
Service |
Date of |
Date of |
CENVAT |
CENVAT |
|
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 | - |
19.8 (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.
- All concerned are requested to acknowledge the receipt of this
Circular.
- 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.
- Hindi version would follow.
Yours faithfully,
(Abhishek Verma)
Technical Officer (TRU)
F.No. 334/8/2016-TRU
|