Service Tax on services provided by Government

[Madhav Kalani]

• Service tax is payable by the Government or local authority on provision of the services which are not specified in the negative list i.e. section 66D of the Act.

• Clause (a) of Section 66D provides that the services by government or a local authority are negatively listed. However, it excludes the following services –

  • 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

  • Any service (substituted for ‘support services’ * – w.e.f. date yet to be notified), other than services covered under clauses (i) to (iii) above, provided to business entities.

    * Section 65B(49) which used to define support services now stands omitted with a date yet to be notified.

• It means any service provided by the Government or local authority will not be chargeable to service tax except aforesaid four categories of services.

• As per sub-clause (iv) of clause (a) of section 66D, any service, (other than services covered under sub- clauses (i) to (iii) above), provided to business entities by government or local authority are taxable as these are excluded from the negative list. But if the service recipient is other than business entity, then service tax shall not be payable as it is not excluded from the negative list.

• The terms Government and Local authority are defined in sections 65B(26A) and (31) of the Act respectively.

• However, in terms of Notification No. 30/2012 – ST dated 20.06.2012, in respect of services provided or agreed to be provided by Government or local authority ‘by way of support services’ (highlighted words to be omitted from a date yet to be notified) except renting of immovable property service and services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D, service tax is payable by service receiver i.e. business entity under reverse charge mechanism. It means in the instant cases, the government departments will not have to get registered because service tax will be payable on such services by the service receiver (i.e. the business entities receiving the service).

• As and when these amendments are given effect to, all the services provided by the Government or local authority to a business entity, except those services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax. The date from which these amendments would come into effect shall be notified in due course.