TMI BlogClarification on issues regarding levy of Service Tax on the services provided by Government or a local authority to business entitiesX X X X Extracts X X X X X X X X Extracts X X X X ..... siness 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 20.6.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertification 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 ₹ 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 ₹ 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Reference Code 999.01/23.8.07 in Circular No. 96/7/2007-ST dated 23.8.2007 issued in the pre-negative list regime are no longer applicable. 6.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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable 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 ₹ 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: (i) The amount of ₹ 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. (ii) According to rule 6(1) of the Service Tax Rules, 1994 , the liability to pay Service Tax liability of ₹ 150/- on the consideration of ₹ 1000/- paid or payable would be required to be discharged by 6.7.2016. (iii) 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 ₹ 50/- 2017-18 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - - - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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