Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit
Circular No.125/7/2010 - ST
North Block, New Delhi
30th July, 2010
To
Chief Commissioners of Central Excise and Service Tax (All),
Director General (Service Tax),
Director General (Central Excise Intelligence),
Director General (Audit),
Commissioners of Service Tax (All),
Commissioners of Central Excise and Service Tax (All).
Madam/Sir,
Subject: Services provided by state governments under Centrally Sponsored
Schemes (CSS) -- regarding.
In the recent past, instances have come to the notice of the Board, where field
formations have demanded service tax from State governments or their
departments/ agencies, for providing certain services under the centrally
sponsored schemes (CSS). To cite an illustration, in the case of the centrally
sponsored National Biogas and Manure Management Program operating under Ministry
of New and Renewable Energy, State government agencies were involved in setting
up of bio-gas plants in villages. Certain expenses incurred by the State
governments or their departments/ agencies during the course of setting up of
such bio-gas plants were reimbursed by the central government by way of a grant
under the CSS. Jurisdictional service tax authorities demanded service tax from
the State government department/agency, saying that the reimbursements received
by the concerned State government department/agency (as service provider) are
nothing but consideration for installation and commissioning service received
from the central government (service receiver).
- Implicit in this service tax demand is an assumption that the relationship
between Central government and the State government is an equivalent of a
relationship between principal and the agent. This assumption is questionable as
under administrative arrangement, State governments are bound to implement the
centrally sponsored schemes on receipt of a grant. The fact that State
governments are implementing agencies for the Central government within the
framework of CSS does not make them service providers. Consequently, Central
government cannot be taken as service receiver. Grant released by the Central
government under a centrally sponsored scheme cannot be presumed as
consideration for providing a taxable service.
- Levy and collection of service tax on State government agencies/departments
implementing CSS under a central grant, is not legally tenable and therefore in
such cases service tax should not be demanded.
- Trade Notice/Public Notice may be issued to the field formations.
- Please acknowledge receipt of this Circular. Hindi version follows.
(J. M. Kennedy)
Director (TRU)
Tel: 011-23092634
F.No.354/35/2010-TRU