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

Service Tax - 192/02/2016 - Dated:- 13-4-2016 - Circular No. 192/02/2016-Service Tax F.No. 334/8/2016-TRU Government of India Ministry of Finance Department of Revenue (Tax Research Unit) Dated- April 13, 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 .....

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stry 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 i .....

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value of ₹ 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 p .....

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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 and 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 lon .....

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uired 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 ₹ 5000/-have been exempted vide Notific .....

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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 .....

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ion, 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 .....

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ever, 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 .....

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rovide 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 resource .....

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hichever 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 .....

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n/sites/default/files/u 8/Payment Methodology And Payment Details.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 .....

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y 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 (wheth .....

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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 sub-rule (1) of rule 9 of CENVAT Credit Rules, 2004 even after the period of 1 year from .....

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use (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 paym .....

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d date of the first payment. Subsequent instalment shall become due on the same date of each following year. (iv) The 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 ₹ 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 ₹ 1 .....

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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 ₹ 50/- 2018-19 ₹ 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 ₹ 930/-. The Service Tax liability and eligibility of CENVAT Credit would be as follows: F.Y. Due date for payment Amount payable by ABC for assi .....

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any ABC becomes the successful bidder. The spectrum is assigned to ABC for a total consideration of ₹ 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 .....

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25 131.94 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 .....

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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 - 19.80 (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 furthe .....

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