All about Services provided by Govt or Local Authority to business entities

By | April 14, 2016

Services (except few) provided by Government or Local Authority to business entities are covered under Reverse Charge Mechanism w.e.f 1st April, 2016 meaning thereby business entities are required to pay Service Tax on services received from Government or Local Authority. To curtail dilemma regrading non-taxability of various charges received by government like registration fee, Central Government has issued Notification No. 22/2016-ST. In addition, changes have been made in Point of Taxation Rules, 2011 and Service Tax (Determination of Value) Rules, 2006 vide Notification No. 23/2016-ST and Notification No. 24/2016-ST, respectively.

Changes in Mega Exemption Notification to exempt following services:-

  1. In entry 39, benefit of exemption has been extended to services provided by Government or Local Authorities by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution. Earlier this exemption is available only to Governmental Authorities.

  2. 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

  3. Services provided by Government or a local authority by way of issuance of passport, visa, driving licence, birth certificate or death certificate

  4. Services provided by Government or a local authority where the gross amount charged for such services does not exceed Rs. 5000/-
    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
    Provided further that in case where continuous supply of service, as defined in clause (c) of rule 2 of the Point of Taxation Rules, 2011, is provided by the Government or a local authority, the exemption shall apply only where the gross amount charged for such service does not exceed Rs. 5000/- in a financial year.

  5. Services provided by Government or a local authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the local authority under such contract

  6. Services provided by Government or a local authority by way of-
    (i) registration required under any law for the time being in force;
    (ii) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under any law for the time being in force

  7. Services provided by Government or a local authority by way of assignment of right to use natural resources to an individual farmer for the purposes of agriculture

  8. Services by Government, a local authority or a governmental authority by way of any activity in relation to any function entrusted to a Panchayat under article 243G of the Constitution

  9. Services provided by Government or a local authority by way of assignment of right to use any natural resource where such right to use was assigned by the Government or the local authority before the 1st April, 2016
    Provided that 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 such natural resource

  10. Services provided by Government or a local authority by way of allowing a business entity to operate as a telecom service provider or use radiofrequency spectrum during the financial year 2015-16 on payment of licence fee or spectrum user charges, as the case may be

  11. 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).

Changes in Point of Taxation Rules, 2011:-

Generally, point of taxation in case of reverse charge is date of payment. Further, in case payment is not made within a period of three months the point of taxation shall be the date immediately following period of three months.

Now in specific case where services are provided by the Government or local authority to any business entity; the point of taxation shall be the earlier of the dates on which, –

  1. Any payment, part or full, in respect of such service becomes due, as specified in the invoice, bill, challan or any other document issued by the Government or local authority demanding such payment; or

  2. Payment for such services is made.

Changes in Service Tax (Determination of Value) Rules, 2006:-

As per rule 6, in sub-rule (2), in clause (IV), the value of taxable service, does not include interest on delayed payment of any consideration for the provision of services or sale of property, whether moveable or immoveable. Now following proviso has been inserted:

“Provided that this clause shall not apply to 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 or any other consideration.”

Hence interest or any other consideration paid for deferment of payment against services provided by Government or a local authority will not be excluded for the purpose of calculation of value of taxable service.

Source

Atul Kumar Gupta
B Com (Hons) FCA, FCMA, LLB, MIMA, CIQA, PGDEMM

Author of “Comprehensive Guide to Service Tax” & “GST Concept & Roadmap”

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