Mega Offer Avail 65% Off in CA IPCC and 50% Off in all CA CS CMA subjects.Coupon- IPCEXAM65 & EXAM50. Call: 088803-20003

CA Final Online Classes
CA Classes

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Service Tax on Government Services under Reverse Charge Mechanism (RCM)

Bavesh Kumar Jain 
on 14 June 2016

LinkedIn


Background:-

The chargeability of service tax on the services provided by the Government is as per the negative list under Section 66D, which is reproduced as below:

Services by Government or a local authority are not chargeable to services tax except the following:

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

For the clause (IV) above, the concern business entity receiving is responsible for discharge of service tax under Reverse Charge Mechanism (RCM) vide Notification No. 30/2012 – Service Tax dated 20th June 2012.

W.e.f from 01st April 2013, the word “support services” is replaced with “any services”, thereby “all services” provided by the Government or a local authority under clause (IV) above is subject to service tax under Reverse Charge Mechanism.

Relevant definitions for understanding:-

Government:

As per section 65B(26A), “Government” means the Departments of the Central Government, a State Government and its Departments and a union territory and its departments but shall not be include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made there under.

Examples of some entities as to whether Government or Not:

Is a Government

Not a Government

Police Department

BSNL

Department of Various Ministries

Airports Authority

State Government Testing Dept.

SEBI

Local Authority:

“Local Authority” means-

  1. a Panchayat as referred to in clause (d) of article 243 of the Constitution;
  2. a Municipality as referred to in clause (e) of article 243P of the Constitution;
  3. a Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund;
  4. a Cantonment Board as defined in section 3 of the Cantonments Act, 2006 (41 of 2006);
  5. a regional council or a district council constituted under the Sixth Schedule to the Constitution;
  6. a development board constituted under article 371 of the Constitution; or
  7. a regional council constituted under article 371A of the Constitution;

Comment:-

Since any service provided by Government or a local authority to a business entity is made taxable, representations were made by several quarters including business and industry associations for clarifications. Accordingly Circular No. 192/02/2016 – Service Tax is released for providing clarifications and Mega Exemption Notification No. 25/2012 is amended vide Notification No. 22/2016 to exempt certain services provided by Government or a local authority.

Relevant extracts from Circular No. 192/02/2016-Service Tax – dated 13th April 2016:-

Clarification on issues regarding levy of Service Tax on the services provided by Government or a local authority to business entities:

SNO

Particulars

Service tax

chargeable or not

Remarks

1.

Taxes, cesses or duties.

Not

  • Because they are not a consideration for any particular service.
  • Includes 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.

2.

Fines and penalties:-

  (a)

For violation of a statute, bye-laws, rules or regulations.

Not

  (b)

For non-performance of contract entered into with Government or local authority

Not

  • Exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016

3

Services provided in lieu of fee charged by Government or a local authority

Chargeable

Exemption:

  (a)

Gross amount charged for such service does not exceed Rs 5000/- (For one time service).

Not

  • Exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016

  (b)

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.

Not

  (c)

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.

Not

 4

Services in the nature of change of land use, commercial building approval, utility services provided by Government or a local authority.

Not

  • Exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016

5

 Services provided by Government or a local authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the constitution.

Not

  • Exempted vide Notification No. 25/2012 – ST dated 20.6.2012 as amended by Notification No. 22/2016 – ST dated 13.4.2016

Relevant extracts of Amendment in the Mega Exemption Notification No. 25/2012 vide Notification No. 22/2016 to exempt certain services provided by Government or a local authority to a Business entity:-

  • Services provided by Government or a local authority to another Government or local authority, Provided that nothing contained in this entry shall apply to services specified in sub-clauses (i),(ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994.
  • Services provided by Government or a local authority by way of issuance of passport, visa, driving license, birth certificate or death certificate.
  • Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of Merchant Overtime charges (MOT).

Availment of CENVAT Credit:-

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 availed on the basis of challan evidencing payment of Service Tax by the Service recipient.

Determination of POT (Point of Taxation):-

Rule 7 is applicable for determination of POT. As per Notification No. 24/2016-Service Tax, Rule 7 is amended by adding a proviso for determination of POT for the services provided by the Government or a local authority.

Accordingly, POT is earlier of the following:

  • Due date of payment (as per the invoice, bill, challan or any other document) or
  • Actual date of payment for such services.

Few practical instances:-

SNO

Particulars

Service tax

chargeable or not

Remarks

1.

Fees paid for filing of TDS Return

Not

Mostly less than Rs. 5,000

2.

Fees Paid under Section 234E (for late filing of quarterly TDS Returns)

Not

Under Fines and Penalties

3.

Payments made to BSNL

Not

Not covered under definition of "Government"

4.

Water Charges

Not

Mega Exemption Notification and also supply of water is not a service

5.

Electricity

Not

Electricity boards not covered under definition of "Government”

6.

Fees paid to Registrar of Companies (ROC) for various services

Chargeable

Not chargeable to service tax if less than Rs. 5,000 in a financial year.

Disclaimer:-

The analysis aims to provide the reader a general understanding of the proposed amendments and should not be construed as a legal opinion.

The author can also be reached at bhaveshjain2673@gmail.com.


Tags :



Category Service Tax
Other Articles by -
Bavesh Kumar Jain 

Report Abuse

LinkedIn



Comments


update

X

Do you have any Tax Queries

Submit