TaxTMI 
TaxTMI 
Clarification on issues regarding levy of Service Tax on the services provided by Government or a local authority to business entities
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.... 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:- 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 in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994. 2. Services provided by Government or a local authority to an individual who may be carrying out a profession or business. 1. Services by way of grant of passport, visa, driving license, birth or death certificates 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 55 refers]. ....
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....ted 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Reference Code 999.01/23.8.07 in Circular No. 96/7/2007-ST dated 23.8.2007 issued in the pre-negative list regime are no longer applicable. 6. 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 Notificat....
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....ption for rights assigned after 1.4.2016. Rule 7 of the Point of Taxation Rules, 2011 has been amended vide Notification No. 24/2016 -ST dated 13.4.2016 to provide 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 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. ....
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....ication No. 24/2016 C.E. (N.T.) dated 13.4.2016. Consequently, the CENVAT Credit of the Service Tax on one time charges (whether paid upfront or in installments) paid in a year, may be allowed to be taken evenly over a period of 3 (three) years. [Rule 4(7) of CENVAT Credit Rules, 2004 as amended refers]. Detailed illustrations explaining how the CENVAT Credit is to be availed, are given in para 2 below. 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 sub-rule (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....
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....he CENVAT Credit Rules, the CENVAT Credit in respect of the Service Tax paid would 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 Rs. 50/- 2017-18 Rs. 50/- 2018-19 Rs. 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 Rs. 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 assignment of spectrum (Rs.) Amount charged by ABC for further assignment of spectrum to XYZ (Rs.) Service Tax liability on ABC @ 15% (Rs.) Date of Point of Taxation Date of payment of Service Tax CENVAT Credit available to ABC in the relevant F.Y. (Rs.) CENVAT Credit available to XYZ in the relevant F.Y. (Rs.) 2016-17 25.6.2016 1000 - 150 25.6.2016 6.7.2016 50 - 2017-18 - - - - - - 50 - 2018-19 - - - - - - 50 - 2019-20 930 139.50 1.8.2019 6.9.2019 - 4....
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....it would be as follows: F.Y. Instalment Due date for payment Amount payable to Govt for assignment of spectrum (Rs.) ABC Amount charged by ABC for further assignment of spectrum to XYZ (Rs.) Amount payable to Govt for assignment of spectrum (Rs.) XYZ Service Tax liability @ 15% (Rs.) ABC Service Tax liability @ 15% (Rs.) XYZ Date of Point of Taxation 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 further assignment to XYZ) 6.7.2020 (in respect of the 2nd installment) and 6.9.2020 (in respect of further ....