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 of Customs and Central Excise (All)
Principal Commissioners/Commissioners of Central Excise and Service Tax (All)
Principal Commissioners/Commissioners of Service Tax (All)
Principal Commissioners/Commissioners LTU/Central Excise/Service Tax (Audit)
Subject: - Clarification on issues regarding levy of Service Tax on the services provided by Government or a local authority to business entities - reg.
Madam/Sir,
Any service provided by Government or a local authority to a business 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:-
2
2. Further, for services provided upto a taxable value of Rs 5000/-, Sl. No. 5 below may please be seen.
3
4
2. Fines and liquidated damages payable to Government or a local authority for non-performance of contract entered into with Government or local authority 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 57 refers].
5
2. However, 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,
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 Rs 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 Rs. 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
7
8
9
10
(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 Government to a business entity shall be the date on which any payment, including deferred payments, in respect of such assignment becomes due or when such payment is made, whichever is earlier. Therefore, if the assignee/allottee opts for full upfront payment then Service Tax would be payable on the full value upfront. However, if the assignee opts for part upfront and remainder under deferred payment option, then Service Tax would be payable as and when the payments are due or made, whichever is earlier.
11
http://www.dot.gov.in/sites/default/files/u8/NIA_January_2015.pdf and http://www.dot.gov.in/sites/default/files/u8/PaymentMethodologyAndPaymentDetails.pdf respectively.
12
13
14
However, the Service Tax paid on spectrum user charges, license fee, transfer fee charged by the Government on trading of spectrum would be available in the year in which the same is paid. Likewise, Service Tax paid on 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 subrule (1) of rule 9 of CENVAT Credit Rules, 2004 even after the period of 1 year from the date of issue of such a document in case of services provided by the Government or a local authority or any other person by way of assignment of right to use any natural resource [Fifth Proviso to sub-rule (7) of Rule 4 of CENVAT Credit Rules, 2004].
15
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 payment of full auction price (bid amount) by, let's say, 25.6.2016;
or
(b) Deferred payment:
(i) An upfront payment of 33% of the final bid amount shall be made by 25.6.2016;
(ii) There shall be a moratorium of 2 years for payment of balance amount of one time charges for the spectrum, which shall be recovered in 10 equal annual instalments of Rs. 131.94 including interest for deferred payment.
(iii) The 1st instalment of the balance due shall become due on the third anniversary of the scheduled 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 Rs. 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 Rs. 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 Rs. 150/- on the consideration of Rs. 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:
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 Rs. 930/-. The Service Tax liability and eligibility of CENVAT Credit would be as follows:
CASE 3:
Company ABC becomes the successful bidder. The spectrum is assigned to ABC for a total consideration of Rs. 1000/-. ABC chooses the deferred payment option. The payment schedule, Service Tax liability and eligibility of CENVAT Credit would be as follows:
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 right to use the spectrum to Company XYZ on 1.8.2020 for a consideration of Rs. 200/-. The Service Tax liability and eligibility of CENVAT Credit would be as follows:
spectrum to XYZ (Rs.)
(on 2nd Instalment) + 30 (for further assignment to XYZ)
(in respect of the 2nd installment) and 1.8.2020 (in respect of further assignment to XYZ)
(in respect of the 2nd installmen)
and 6.9.2020 (in respect of further assignment to XYZ)
(being balance CENVAT Credit)
10*
3. All concerned are requested to acknowledge the receipt of this Circular.
4. Wide publicity may be given so that the assessees and public are aware of the above. All the major Industry and Trade Associations may be informed accordingly. Difficulty if any, in the implementation of the Circular should be brought to the notice of the Tax Research Unit.
5. Hindi version would follow.
Yours faithfully,
(Abhishek Verma)
Technical Officer (TRU)