GOVERNMENTAL AUTHORITY - THEN AND NOW

In Service Tax, Governmental Authority assumes significance as certain specified services provided by it and received by it are exempt or not liable to levy of Service Tax. Though the term governmental authority comprises of two words – governmental (derived from government) and authority we have a specific definition of governmental authority as defined in clause 2(s) of Notification No. 25/2012-ST dated 20.06.2012. This is an exemption notification which contains 39 exemptions under Service Tax for various services / service providers / service receivers. There are few exemptions meant for governmental authorities.

Meaning of Governmental Authority

(W.e.f. 01.07.2012 upto 29.01.2014)

Clause(s) of definitions in Notification No. 25/2012-ST defines governmental authority as under-

'governmental authority means a board, or an authority or any other body established with 90 percent or more participation by way of equity or control by Government and set up by an Act of the Parliament or a State Legislature to carry out any function entrusted to a municipality under article 243W of the Constitution.

Following conditions should be satisfied for a board, body or an authority to be eligible for exemptions as a governmental authority:

• set up by an act of the Parliament or a State Legislature;
  • established with 90 percent or more participation by way of equity or control by Government; and
  • carries out any of the functions entrusted to a municipality under article 243W of the Constitution.

What are the functions entrusted to a municipality under article 243W of the Constitution of India. Article 243W of the Constitution is as under:

Subject to the provisions of this Constitution, the Legislature of a State may, by law, endow-

(a)   the Municipalities with such powers and authority as may be necessary to enable them to function as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon Municipalities, subject to such conditions as may be specified therein, with respect to -

(i)     the preparation of plans for economic development and social justice;

(ii)    the performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule;

(b)   the Committees with such powers and authority as may be necessary to enable them to carry out the responsibilities conferred upon them including those in relation to the matters listed in the Twelfth Schedule.

Matters listed in twelfth schedule are:

1. Urban planning including town planning.
2. Regulation of land-use and construction of buildings.
3. Planning for economic and social development.
4. Roads and bridges.
5. Water supply for domestic, industrial and commercial purposes.
6. Public health, sanitation conservancy and solid waste management.
7. Fire services.
8. Urban forestry, protection of the environment and promotion of ecological aspects.
9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded.
10. Slum improvement and upgradation.
11. Urban poverty alleviation.
12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.
13. Promotion of cultural, educational and aesthetic aspects.
14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums.
15. Cattle pounds; prevention of cruelty to animals.
16. Vital statistics including registration of births and deaths.
17. Public amenities including street lighting, parking lots, bus stops and public conveniences.
18. Regulation of slaughter houses and tanneries.

 (W.e.f. 30.01.2014)

Vide Notification No. 2/2014-ST dated 30.01.2014, Ministry of Finance has amended the definition of governmental authority as defined in clause 2(s) of Notification No. 25/2012-ST dated 20.06.2012.

The amended definition reads as follows:

(s) “Governmental authority” means an authority or a board or any other body;

(i)  set up by an Act of Parliament or a State Legislature; or

(ii) established by Government, with 90 percent or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243Wof the Constitution.

Accordingly, as per amendment, Governmental Authority means board / authority set up either by Act of Parliament / State Legislature or established by Government, with 90 percent equity control; Earlier, such authority was required to be set by Government and Act of Parliament / State Legislature.

The amended definition shall be effective from 30.01.2014 (and not earlier) and has widened the scope of the term governmental authority implying that the exemption base gets expanded w.e.f. 30.01.2014.

Following conditions should be satisfied or met to qualify as a governmental authority –

• It should be an authority, board or any other body
• Such authority etc should be set up by an Act of Parliament or an Act of State Legislature
• Alternatively, such an authority should be –
• established by Government

with 90 percent or more participation by way of equity or control
to carry out functions entrusted to Municipalities under Constitution of India (Article 243W)
under Constitution of India (Article 243W)

Thus, earlier where as both conditions of Government control  / equity and setting up under State / Union law were required, now either setting up under law is required or Government control / equity  for functions under article 243W of Constitution are required, so as to qualify as Government Authority. The scope therefore gets extended with and being substituted by or.

Impact of Amendment

The effect of this amendment will benefit many boards, authorities and other bodies which were not getting covered under the earlier definition and it shall provide exemption to certain services specifically meant for exemption of services to / by governmental authorities under Notification No. 25/2012-ST.