GOVERNMENT SERVICES & NEGATIVE LIST – RECENT AMENDMENTS

Amendments made by Finance Bill, 2016

Finance Bill, 2016 has made certain changes in the negative list (section 66D). The scope of services under negative list has been further pruned for services in relation to education, transportation of passengers by stage carriage and  transportation of goods by aircraft or vessel from a place outside India to customs station in India.

The amendments in brief are as follows –

1. Clause (l) in respect of education services -

Following services have been omitted from the negative list :

• pre-school education and education up to higher secondary school or equivalent
• education as a part of a prescribed curriculum for obtaining a qualification recognized by law for the time being in force;
• education as a part of an approved vocational education course

This will come into force on enactment of Finance Act, 2016. However, these services have been exempted from levy of Service Tax as per Entry No. 9 under Notification No. 25/2012-ST, as amended.

2. Clause (o) sub-clause (i) in relation to services of transportation of passengers, with or without accompanied belongings, by a stage carriage shall be omitted w.e.f. 01.06.2016. However, this service shall be exempt under new entry No. 23(bb) of Notification No. 25/2012-ST, as amended.
3. Clause (p) sub-clause (ii) relating to services by way of transportation of goods by an aircraft or vessel from a place outside India upto the customs station of clearance in India shall be omitted w.e.f. 1.6.2016. However, this service shall be exempt under new entry No. 53 of Notification No. 25/2012-ST, as amended.

Government Services

Services provided by government or local authorities to business entities

Finance Act, 1994 was amended vide Finance Act, 2015 so as to make any service (and not only support services) provided by Government or local authorities to business entities taxable from a date to be notified later. 1st April, 2016 has already been notified as the date from which any service provided by Government or local authorities to business entities shall be taxable. Consequently, 1st April, 2016 has also been notified as the date from which the definition of support services shall stand deleted from the Finance Act, 1994.(Notification No. 15/2016-ST dated 01.03.2016.)

Taxability of Government Services under Reverse Charge

At present, support services provided by Government or local authorities to business entities are taxable under reverse charge mechanism that is the liability to pay service tax on such services is on the service recipient. With effect from 1st April, 2016, any service (and not only support services) provided by Government or local authorities to business entities shall be taxable. Consequently, 1st April, 2016 has been notified as the date from which the word “support” shall stand deleted from rule 2(1)(d)(i) (E) of Service Tax Rules, 1994 so as to provide that the liability to pay service tax on any service provided by Government or local authorities to business entities shall also be on the service recipient on reverse charge basis.

The liability to pay service tax on any service provided by Government or a local authority to business entities shall be on the service recipient. Consequently, notification No. 30/2012-ST is being amended so as to delete the words „by way of support services‟ appearing at Sl. No. 6 of the Table in the said notification with effect from 1st April, 2016. Further, 1st April, 2016 is being notified as the date from which the words „by way of support services‟ shall stand deleted from paragraph 1, clause A (iv), item (C) of notification No. 30/2012-ST.

Threshold Exemption limit under Reverse Charge

Vide Notification No. 7/2016-ST dated 13.02.2016, any service provided by Government or Local Authority to business entity having turnover exceeding ₹ 10 lakh in preceding year shall be liable to Service Tax w.e.f. 1.4.2016 and covered under reverse charge. In other words, threshold exemption has been provided by Government or Local Authority to business entities with a turnover upto ₹ 10 lakh in the preceding financial year vide entry No. 48 in Notification No. 25/2012-ST, as amended.

Exemption to services provided by Government and Local Authority

Various exemptions have been provided to services provided by the Government or Local Authority to business entities vide Notification No. 22/2016-ST dated 13.04.2016 by amending Notification No. 25/2016-ST. These are as follows :

54.  Services provided by Government or a local authority to another Government or local authority:

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

56.  Services provided by Government or a local authority where the gross amount charged for such services does not exceed ₹ 5000/- :

57.  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;

58.  Services provided by Government or a local authority by way of-

(a)    registration required under any law for the time being in force;

(b)   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;

59.  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;

60.  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;

61.  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:

62.  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;

63.  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).